With a whopping N16 trillion from Central Bank of Nigeria (CBN), the Pension Scheme, Mortgage institutions and other related financial services organisations, Nigeria’s housing sector is set to receive a boost.
This was as efforts are being made to allow pension contributors to access 25 per cent of the savings in their respective Retirement Savings Accounts(RSAs) for mortgage finance. In order to facilitate this, the National Pension Commission is currently discussing with the Central Bank of Nigeria (CBN), Mortgage Firms, and other relevant stakeholders, to fine tune a guideline that will regulate this initiative.
When finally released, it will facilitate access to home ownership by pension contributors as well as bridge the housing deficit in the country. The Section 89 (2) of the Pension Reform Act (PRA) 2014 already provides that a Pension Fund Administrator(PFA) may, subject to guidelines issued by PenCom, apply a percentage of pension fund assets in the retirement savings account towards payment of equity contribution for payment of residential mortgage by an RSA holder.
The Commission is currently working with CBN and other stakeholders in the mortgage sector to develop appropriate Guidelines. The guidelines are expected to be issued this year to allow Contributors to access and utilise part of their RSA balances towards equity contribution in respect of home ownership mortgages. If this is done, it will be a boost to the Real Estate market and equally contribute to socio-economic development of the country.
While commenting on the housing deficit in the country, the Chairman, Petra Real Estate Investment Club, Mr. Emmanuel A. Oyewole, said, the government is not doing much to address the housing deficits in the country as experts have put Nigeria’s housing deficits at 17 million units. Unfortunately, the figure has surged since as there have not been a corresponding increase in supply to the growing population.
While this provision is already in the guideline regulating the pension scheme in the country, the regulator is now working on implementation of this section by dialoguing with relevant stakeholders to make this a reality. When the initiative kickstarts, the intending beneficiaries are expected to make formal application to their respective PFAs, while such contributors are only allowed to access a maximum of 25 per cent of the RSA balance as equity contribution for a mortgage loan even though a contributor, can only access this mortgage finance only once in a lifetime.
The Vice President, Yemi Osinbajo had earlier forecast that the housing deficit in the country has continued to rise. He noted that the injection of the money would go a long way couple with other policies aimed for the sector to reduce the deficits.“The situation is worst in the cities where demographic distribution averages 15 per cent for high income earners, 25 per cent for middle income earners and 60 per cent for the low income earners where as the available trend in the provision of housing units, by both public and private organisations are unfortunately 70 per cent, 20 per cent and 10 per cent in favour of high, middle and low income earners respectively,“ he stated.
he total assets of pension fund with the National Pension Commission (PENCOM) is N8.67 trillion this year, PENCOM has said assuring that the fund is intact and very safe.
The Acting Director General of PENCOM, Mrs Aisha Dahir-Umar, made the disclosure, yesterday in Akure, the Ondo State capital during the 2019 First Quarter Consultative Forum for states.
Represented by the Head of States Operations Department of the commission, Dr. Dan Ndackson, Dahir-Umar maintained that since the commencement of the Contributory Pension Scheme (CPS), it has become a veritable tool for federal and state governments for accessing bonds for developmental purposes.
She said since the existence of the scheme in the past 14 years, the commission has never been found wanting or missing any kobo.
She said since the inaugural forum in 2014, many states have made tremendous progress towards adopting the CPS.
“The essence of this forum is to discuss issues associated with the implementation of contributory pension scheme in states. So we want to tell Nigerians today that pension fund assets are safe,” she said.
Declaring the forum open, Ondo State Governor Oluwarotimi Akeredolu said pension scheme occupies a strategic position in economic development.
He said it was not only an essential component of social security but also a veritable tool for nation building.
Businessmen in Nigeria can heave a sigh of relief as the Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 14% to 13.5%, the first reduction since 2016.
Announcing the slight drop in interest rate at a media briefing after the apex bank’s Monetary Policy Committee (MPC) in Abuja, the CBN Governor, Mr Godwin Emefiele said the reduction would also manage investor sentiments in terms of capital inflows.
The committee, which holds a meeting once in three months, first set the benchmark interest rate at 14% in July 2016 to combat inflation and improve investor attitudes towards bringing in new capital. The country was in a recession at that time.
Simply put, the monetary policy rate is the baseline interest rate in an economy.
Every other interest rate used within an economy is built on the MPR.
At its January meeting, the committee had said that the chances of loosening were remote although it said tightening would “result in the loss of the gains so far achieved.”
The Federal Government’s securities is said to have swallowed over 73.09per cent or N6.20 trillion of N8.64 trillion pension assets as at the end of December 2018, the National Pension Commission (PenCom)has said.
Data obtained from PenCom stated that 73.09 per cent of the pension funds had been invested in the Federal Government of Nigeria’s securities by the Pension fund Administrators (PFAs) within the period under review.
Investments in FGN securities include: N4.53 trillion amounting to 52.49 per cent in Bonds; N1.67 trillion in Treasury Bills (19.37 per cent); N11.57 billion in Agency Bonds (NMRC & FMBN), (0.13 per cent); N86.54 billion in Sukku (1.00 per cent) and N7.23 billion in Green bonds, (0.08 per cent).
PenCom noted that the number of Retirement Savings Accounts (RSAs) holders at the period was 8.41 million, which consist, 5.93 million males, 2.47 million females from the public and private sectors.
It stated that N606.19 billion, which is 7.02 per cent of the funds, was invested in domestic ordinary shares; while N55.86 billion, amounting to 0.65 per cent in foreign ordinary shares.
The pension industry regulator maintained that pension operators invested N138.71 billion (1.61 per cent) in State Government’s Securities; Corporate bonds got N461.16 billion (5.34 per cent); Corporate Infrastructure bonds, received N7.52 billion, (0.09 per cent); Supra-National Bonds got N6.91 billion (0.08 per cent); commercial papers, N82.81 billion (0.96 per cent); Banks, N626.33 billion (7.25 per cent).
Others are, Reits, N15.54 billion, (0.18 per cent) Foreign Money Market Securities, N3.21 billion, (0.04 per cent); private equity fund, N31.35 billion, (0.36 per cent), Real Estate Properties, N229.71 billion, (2.66 per cent); infrastructure funds, N18.51 billion, (0.21 per cent) and cash & other assets, N32.32 billion, (0.37 per cent).
Deposit money banks (DMBs) in Nigeria have intensified competition to acquire retail and corporate customers following a strategic focus around loan refinancing.
The banks are making reasonable efforts at acquiring the loan liabilities of target prospects from other banks, with an offer for discounted interest rates.
Expectedly, banks making the bold move are majorly those that are reasonably liquid to take such risks for an enhanced customer base. They cut across the tier-1 and tier-2 lenders.
BusinessDay learnt these banks meet both large and small corporates as well as individuals with various categories of existing loans, preferably the soft loans offered to salary earners. Very simply, their targets are the salary accounts of the prospects.
A director in one of the tier-1 banks told BusinessDay on the phone that the strategy is an opportunity for collection and credibility.
The director explained that banks target certain names with credibility and also look at the entire value chain of distributors and staff of a company. The Central Bank of Nigeria’s latest publication of the applicable rates for each of the DMBs as at June 22, 2018 shows that banks charge between 4.20 percent and 20.5 percent for prime lending and between 20.4 percent and 41.5 percent for max lending.
Total value of credit allocated to the private sector of the economy by the banks stood at N15.13 trillion as at the fourth quarter (Q4) 2018, a decline of N455 billion from N15.58 trillion at the end of the third quarter (Q3) 2018, according to the National Bureau of Statistics (NBS).
The banks that are liquid target customers of cash-strapped banks with incentives in form of lower interest rates and afterwards, restructure the loans.
“This is a form of loan refinancing. It makes a business sense where customers have loans with high interest rates which they contracted in periods of high interest rates,” said Taiwo Oyedele, head, tax and regulatory services, PwC.
The CBN has kept its monetary policy rate (MPR) at 14 percent since July 2016, when it lifted the rate by 200 bps.
The regulator has also kept unchanged the liquidity ratio at 30 percent, cash reserve ratio at 22.5 percent and +200/-500 basis point asymmetric corridor around the MPR.
“Now that rates are trending downward, a bank can refinance such loans at a lower rate and still make money in the process. Overall, it is a reflection of the intense competition in the sector which is good for customers and the economy in general,” Oyedele said.
The aggressive loan push by banks has further intensified following the continued drop in Nigerian Treasury Bills yield.
Ayodele Akinwunmi, head of research, FSDH Merchant Bank Limited, said banks offering lower rates to customers is a market strategy.
On the implication of the development on the banking industry, Akinwunmi said if the rates continue to drop, interest income of the banking sector will drop. Income of banks consists of about 70 percent of their loan.
In the week ended March 1, increased foreign investor appetite in emerging markets, sustained low frequency of Open Market Operations (OMO) auctions and buoyant liquidity compressed yields by 122bps W-o-W across tenors in the Treasury Bills (“T-Bills”) secondary market to 13.0 percent, from 14.2 percent the previous week, Afrinvest Securities Limited said in a report.
Singapore-based investors were Asia’s most active group of offshore real estate investors in 2018, contributing US$21.6 billion ($29.4 billion) of the region’s total outbound investment, according to a report by CBRE on March 7.
“Driven by limited opportunities and compressed yields in the domestic market, Singapore investors will continue to seek enhanced yields offshore to diversify their portfolios and achieve more sustainable growth,” says Yvonne Siew, executive director of global capital markets for Asia-Pacific, CBRE.
Singapore-based capital contributed to 40% of Asia’s total outbound investment in 2018, which fell by 36% y-o-y to US$53.8 billion. The decline stemmed from Chinese investors who deployed US$7.5 billion in capital to offshore real estate investments, compared to US$35.4 billion in 2017.
Chinese investors are rebalancing their real estate portfolios and transitioning into net sellers of real estate to strengthen balance sheets and recycle capital for deployment into future outbound investments, says CBRE.
Investors from Malaysia and India also injected more capital overseas, increasingly their total capital investments in 2018 by 132% y-o-y and 291% y-o-y respectively, while Korean investors allocated capital worth US$7.3 billion, compared to US$6.3 billion in 2017.
“The Asian outbound investment story in 2018 was, on the one hand, characterised by a clear moderation from China, but on the other hand, represented cyclical portfolio rebalancing and strategically preparation for future activity,” says Leo Chung, associate director of research at Asia Pacific, CBRE. “The pull-back from China’s investors was not entirely unexpected but encouragingly created opportunities for new strategic investors to amplify offshore investment activities.”
London remained the top destination for Asian capital, and investors from Hong Kong, Singapore, and Korea accounted for over 85% of investment activities in the metropolis last year. About 18% of total Asian outbound capital was deployed to London in 2018, compared to 13% in 2017. At the same time, 9% went to Hong Kong, 9% to Shanghai, and 4% went to Frankfurt real estate investments.
At an International Women’s Day empowerment event themed ‘Balance for better’ in Lagos on Friday, Google announced the launch of 18 new Womenwill chapters across sub-Saharan Africa to drive conversations that promote gender equality for the benefit of everyone.
Google Africa’s Brand and Reputation lead, Mojolaoluwa Akinremi-Makinde, described Womenwill as a Google initiative aimed to create economic opportunity for women everywhere so that they could grow and succeed.
According to her, the programme will help women to make the most of technology to build skills, get inspired, and connect with each other through training, events and advocacy.
“The gender gap can be solved if women have the same access to resources and skill acquisition sources as men. This is why we’re expanding the Womenwill chapters in SSA and continuing our focus on diversity and gender equality into 2019 and beyond,” Akinremi-Makinde said.
She stated that the new chapters were located across sub-Saharan Africa in cities including Accra, Cape Town, Dar es Salaam, Johannesburg, Lekki and Onitsha, bringing the total number of chapters in Africa to 25, with more to launch in the coming weeks.
According to her, the chapters are being launched simultaneously at events in Johannesburg, South Africa; Nairobi, Kenya; and Lagos, Nigeria following a week in which digital skills masterclasses held at various locations in these countries, involving some 5,000 women.
The Country Director, Google Nigeria, Juliet Ehimuan-Chaizor, said research had shown that a lot of women were employed in lower paid jobs in the informal sector, adding that a 2018 gender gap report indicated that it would take up to 165 years to close the gender gap.
According to her, the statistics are unacceptable because of the impact the gender inequality can have on society.
Ehimuan-Chaizor added that the Womenwill programme would empower African women with the right skills for them to grow appropriately.
“Since 2016, we have worked to upskill young people and Small and Medium Enterprises living and opearting in Africa via our Digital Skills for Africa programme to help them find jobs and grow their businesses,” Akinremi-Makinde said. “Our digital skills training has been offered in 29 countries across Africa with over a million people recording business growth, starting new businesses, finding jobs or growing in their current jobs. We have trained more than three million people in total of which 48 per cent are women.
“This year, we are playing our part in the contribution to women empowerment and we will be expanding the reach of our Grow with Google programmes in SSA to focus on women empowerment as a key pillar. We aim to empower women with the right skills, coaching, mentorship and community support to access opportunities,” she commented.
Real estate investing interests large numbers of people, especially when home prices are rising. And that’s been the case in recent years. According to the latest figures from the Federal Reserve, “The median net worth of homeowners increased 15 percent between 2013 and 2016, whereas that of renters or other non-homeowners fell 5 percent.”
Logically, if homeowners are doing so well, then doesn’t it make sense to own more than one house? If you want to be an investor, you’ll need real cash. But how much do you need? In some cases, as we shall see, the answer is very little.
Cash needs for real estate investing
The cash needed to purchase investment property will vary according to many factors. The three big items to watch are the cash needed for a down payment, the cash needed to close, and the cash immediately required for moving and repairs. Additionally, buyers should always have reserves in case something unexpected takes place.
Owner-occupants typically finance a home with one of four options: FHA mortgages, VA financing, conforming loans that can be bought by Fannie Mae and Freddie Mac, and USDA mortgages.
For investors, most of those programs are off-limits. Neither FHA nor VA programs allow pure investor mortgages. The property must be owner-occupied to be eligible. On the other hand, with just 3.5 percent down (FHA) or even zero down (VA), you can finance a property with as many as four units if you live in one unit as your prime residence.
Fannie Mae and Freddie Mac do allow investor loans, but buyers must be highly-qualified and bring a larger down payment.
There are situations where real estate investing can be done with less cash. Some options to consider include:
Many loan programs allow owners to provide a seller contribution, from 2 to 6 percent of the sale price. Typically, such contributions can be used to offset closing costs and mortgage borrowing. However, there is a minimum down payment that must come from the buyer.
While seller contributions typically cannot be used to pay some or all of the down payment, that is generally not the case with gifts. Gifts – especially from friends and family – can offset down payment requirements.
To make sure a gift is really a gift and not a disguised loan, lenders require a “gift letter” from the donor stating that the money is a gift and that no repayment or interest is required. They also often want bank statements from the gift-giver to prove that he or she has the money to give you, and a paper trail showing that the money exited the giver’s account and entered yours.
Co-buyers and co-borrowers
If cash is a problem, perhaps the answer is to find a financially-strong co-buyer. With an equity-sharing agreement, you have an occupant-owner and a non-resident investor owner.
Both partners pay their share of mortgage costs, taxes, repairs, etc. However, the owner-occupant pays rent. For tax purposes, the rent is income to both parties, and the mortgage interest, property taxes, depreciation and other costs count as deductions from that income.
The property may generate positive cash flow to both parties, create paper losses to be deducted from other income — or even both.
When the property is sold, the owners divide the profit or loss. A written equity sharing agreement is a must – speak with a real estate attorney for details.
Those with an interest in flipping often need to act quickly, or they’ll lose a property. Private lenders, historically known as hard money lenders, can often fund transactions in 10 days or so but such loans require a lot of cash. According to the Housing News Report, “Private lenders often have terms which include 70 percent loan-to-value (LTV) ratios, 3 to 4 points, interest from 8 to 13 percent, and a length of one to two years.”
Financing from private lenders tends to be short-term because the assumption is that flippers will quickly re-sell properties. However, stalled repairs, surprise problems, unexpected costs, and changes in market demand can delay sales and make flipping very risky. An alternative funding approach is to team with other investors, pool money, and buy property for cash.
Today’s FHA and VA home loan programs allow qualified borrowers to assume existing mortgages for investment property purchases. For VA home loans, you don’t need to be eligible for VA financing yourself. you don’t have to be in the military or a veteran.
The upside is that you can save money on mortgage origination costs, and may get a better interest rate than is currently available. (This depends on when the existing mortgage was taken, and how much the home seller is paying.)
However, you’re likely to need a sizable down payment. The reason is that the loan balance has been paid down by the current owner, while the home value is likely to have increased.
If your seller has a 3.75 percent interest rate, that’s much better than you can get right now. That rate was available in 2016. So let’s assume that the current seller paid $200,000 for a home put 5 percent down. Three years later, the loan balance would be about $188,000. meanwhile, if the property value increased at 5 percent per year, it’s worth $231,525. You’d need $43,525 to make up the difference.
Rather than one loan, why not purchase with two? This is not only a way to reduce cash needed, but it can also eliminate mortgage insurance costs.
For example, you want to buy a $300,000 property. You could buy with $60,000 down (20 percent) and a $240,000 mortgage (80 percent). Alternatively, you could buy with a $240,000 mortgage and a second loan for $45,000. Now you have $285,000 in financing and need just 5 percent down in cash – a total of $15,000 plus closing costs.
It has never been harder to get a foot on the housing ladder. House prices are now nearly eight times the average wage, and they have been rising faster than most can save.
Almost one in four first-time buyers are now turning to the ‘Bank of Mum and Dad’, figures from insurer Aldermore Bank show.
And 30-year-olds whose parents have no property wealth are 60 percent less likely to be homeowners, according to the Resolution Foundation.
But if you can’t hand over a hefty deposit to your loved ones, you could still lend a hand.
Last week we explained how you can aid them in preparing their finances to get mortgage-fit in two years. Here, we explore other ways to help them get the keys to their first home…
GIVE IT ALL AWAY
Family or friends can give all — or a chunk — of a deposit to the buyer as a simple, tax-free, non-returnable gift.
Simply handing over a deposit is the most common way parents help their children onto the ladder, and this is where the term ‘Bank of Mum and Dad’ originates.
Legal & General figures show the Bank of Mum and Dad gave close to £5.7 billion in 2018.
Alongside savings accounts for first-time buyers such as Help to Buy and Lifetime Isas, a gifted deposit can top up any shortfall.
But this may be an option only for wealthy parents who have money they won’t need in retirement if they intend to give all their loved ones an equal deposit.
Vicky Bradley, a product manager at Skipton Building Society, had saved £9,000 for a deposit when she fell in love with a £125,000 two-bed terraced house in Keighley, West Yorkshire.
Her parents, Bob and Linda Bradley, offered to help cover the 10 percent deposit and fees.
‘They agreed to an informal loan of £3,000, but then told me it was really a gift,’ says Vicky. ‘It was such a lovely surprise and allowed me to arrange a mortgage straight away.’
Gifted money could be subject to inheritance tax. For gifts above your annual allowance of £3,000, you must live longer than seven years from the date you gave the money away to avoid the risk of an inheritance tax liability on your donation.
A gifted deposit can also prompt questions over who gets the money back if a couple of splits and their house is sold.
A solicitor can draw up a legal document such as a Declaration of Trust to note which buyer the gift was given , and the share of the property to which they are entitled.
…OR GET IT BACK
If you cannot afford to give a deposit away, then you can lend it — on your own terms.
A loan lets you keep some control by specifying when you need the cash back. It may be exempt from inheritance tax but the rules are complex, so check with a tax expert first.
A solicitor is needed to draw up the terms and, just like with a mortgage, the parents would register a charge on the property deeds to ensure the loan is paid back.
The charge on the deeds would specify that on the sale of the property, or when it is remortgaged, the money lent is repaid.
A drawback for the parents, however, is that they are also required to stick to the terms and cannot readily access their cash.
Only a handful of lenders accept a parental loan as a deposit, and those that do take monthly repayments into account — which could restrict the amount your child can borrow.
LOAN YOUR NAME
First-time buyers can now add their parents to the mortgage application while keeping Mum and Dad’s names off the deeds.
A ‘joint borrower, sole proprietor’ deal allows the buyer to apply for a home loan using their parents’ income. Adding family members to the mortgage, but not the property, has grown in popularity.
Lenders prefer this over a traditional guarantor deal, where parents are vetted separately to make sure they can make payments in case the children default on the loan.
After Virgin Money withdrew its guarantor mortgage last year due to a lack of demand, only a handful of lenders, including Hinckley & Rugby, Cambridge and Market Harborough building societies, will still consider this type of deal.
Instead, around 20 lenders offer the new joint borrower arrangement — double that available ten years ago.
High Street banks such as Barclays, Metro, and Clydesdale offer a mortgage on these terms, along with building societies such as Newcastle, Hinckley & Rugby and Buckinghamshire. Interest rates are typically the same as with a regular mortgage.
The cheapest five-year fix available is 2.34 percent with Barclays for borrowers with a 10 percent deposit. On a mortgage of £150,000, the monthly repayments would be £661. Over five years, the total cost of the mortgage, including a £999 fee, would be £40,659.
The length of the mortgage offered will depend on the age of the oldest borrower.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘This type of deal helps with the affordability of the mortgage but not the deposit.
It also ensures the child qualifies for first-time buyer stamp duty exemptions, while the parents sidestep the additional 3 percent stamp duty surcharge for purchasing a second home.’
And by not owning a share of the first-time buyer’s home, parents can also avoid paying capital gains tax on any increase in the value of the house when it is sold.
But Mr Harris warns: ‘Anyone named on the mortgage is jointly responsible for making payments. It could also damage their credit rating if repayments are not maintained, and affect the parents’ ability to take out further debt in the future.’
Among specialist offers aimed at families is a 100 percent mortgage tied to a savings account.
This allows first-time buyers to buy a house without a deposit on the condition that a family member deposits money in attached savings account for a fixed period.
The Barclays Family Springboard and Lloyds Lend A Hand mortgages require 10 percent of the value of the house to be locked away in a fixed-interest savings account for three years.
Although your money is tucked away and you cannot access it in an emergency, you will get it back, along with interest, when the term ends.
Lloyds pays 2.5 percent on savings, and Barclays currently pays 2.25 percent — its rate is set 1.5 percent above the Bank of England base rate.
David Hollingworth, of mortgage broker L&C, says: ‘This could help parents or grandparents who are not in a position to give money away, or have a large family and need to share their wealth around.’
But for the first-time buyer, it may mean they have to stay in the property until its value increases enough to give them a substantial deposit in order to take the next step on the housing ladder.
If the house price falls, they could find themselves in negative equity. If mortgage payments are missed, banks may hold on to the money for longer until they are cleared or, depending on the lender, use some of the money to clear any debts.
Former garage owner Carl Bojen, 65, used the Family Springboard mortgage to help his granddaughter Toni Thornton, 28, buy her first home nearby in Grimsby, Lincolnshire, with partner Kane Ramsey and their son Ronny, three.
‘I want to help all my grandchildren buy their own homes, but it would break me to give all six of them a deposit,’ Carl says.
Carl and his wife Linda, 65, put £13,200 of their savings — 10 percent of the £132,000 purchase price — into a Barclays savings account attached to the mortgage. After three years Carl and Linda will get their money back with interest, ready to help their next grandchild.
Without help, Toni, who works in telephone sales, and electrician Kane would have had to save for another three years.
Another option for families is, instead of offering cash as a deposit, parents can allow the bank to put a charge — like a mortgage — on their home for the equivalent amount.
The value of that charge could be, for example, 20 to 25 percent of the value of the first-time buyer’s house. It remains on the property for around 10 years.
It can be reviewed before then, and if there is enough equity built up in the home, it can be removed early.
Aldermore Bank and Family Building Society are two lenders that offer these types of mortgages. Family BS requires the first-time buyer to contribute 5 percent of the deposit.
It could suit parents who have lots of property wealth and do not plan to move house.
If parents want to move, particularly in the short term, there must be enough equity in their new home to still provide the same guarantee.
There is also the risk that they could lose their home if their child or grandchild’s house is repossessed and there is not enough money to repay the loan.
Families can also use a savings account to slash the interest a first-time buyer pays on their mortgage.
A family offset mortgage is similar to the savings and mortgage account option, but instead of getting interested on the money in the account, it is used to reduce the mortgage cost.
When the mortgage lender checks whether the first-time buyer can afford the mortgage, they will base the assessment on the lower monthly payments, after the parents’ savings have been taken into account.
For example, if a mortgage of £150,000 was taken out, and £50,000 savings were deposited in the account, the borrower would only pay interest on £100,000 of the mortgage.
Family Building Society and Yorkshire Building Society are among those which offer the deal.
Parents will get their money back after a fixed period. This is usually ten years, but it can be reviewed earlier — for example, when the borrower’s fixed rate comes to an end.
The drawback is that the money is locked away for a period and will not earn interest for the parents. It could also be eroded by inflation.
If the house is repossessed or sold for less than the loan amount due, savings in the offset account can also be used to foot the shortfall.
But in a low-interest rate environment, savers may prefer to forego earning a small amount of interest in favor of helping their children pay less towards their monthly mortgage payments.
Kim and Alison Wilkinson, both 60, from Surrey, used a Family Building Society offset mortgage to help their daughter Sarah, 26, buy a £260,000 three-bedroom terraced home in Portsmouth, Hampshire.
The couple had built up savings but did not need to use them in the short term. Earning next to no interest in a savings account, they decided to put the money to better use.
Secondary school teacher Sarah’s mortgage with Family BS was fixed for five years at 2.89 percent.
‘Mum and Dad wanted their money to work as hard as possible,’ says Sarah. ‘By putting it in the offset account, it effectively earned 2.89 percent.’
While she could afford the monthly repayments without her parents’ help, she says: ‘This reduced my mortgage payment from around £750 to £550, which gave me the more disposable income to furnish the house and enjoy treats such as holidays, which I may not have been able to do as a first-time buyer.’
CASH IN PROPERTY
Income-poor older homeowners with plenty of property wealth could unlock their home’s equity to help.
Equity release is available to borrowers aged 55 or over. It allows homeowners to gift their property wealth now, instead of waiting until they die and their house is sold.
In the first half of 2018, close to 20 percent of borrowers taking out equity release used the money to help the family, according to Canada Life.4
The only has to be repaid only when the homeowner dies or moves into long-term care. There are also options that allow borrowers to pay the monthly interest if they want to reduce the cost of the overall loan.
This can also reduce your inheritance tax liability, as the value of the equity release loan will be deducted from the overall estate when the inheritance tax bill is calculated.
Rates on equity release mortgages are higher than traditional mortgages. The average interest rate is 5.24 percent, compared to the average two-year fixed rate of 2.49 percent on a traditional mortgage.
Interest is also rolled up and added to the loan monthly, which can double the debt every 14 years.
Parents or grandparents should seek legal advice before entering into a family mortgage arrangement.
A breakdown of the recently released GDP report by the National Bureau of Statistics showed a further contraction in the real estate sector. The sector’s real growth stood at -3.85% from -2.68% recorded in the preceding quarter.
The sector has now been in the negative territory for at least 12 consecutive quarters. However, the sector’s contribution increased from 6.5% in Q3’18 to 6.6% in Q4’18.
The global real estate agency, Knight Frank, recently released its ‘The London Report 2019’. In this report, the agency observed:
1. Commercial offices in central London attracted a total of £16.2 billion of global capital ahead of other cities like Paris, Manhattan and Hong Kong. China was the largest investor in the city.
2. London’s real estate market remains the most liquid and transparent in the global market. This will remain an attractive feature for global and domestic investors.
What does this mean for developing countries like Nigeria?
Renewed hope in London’s real estate market coupled with the negative growth recorded in Nigeria’s real estate market reduces the possibility of increased investment in the domestic real estate sector.
Performance of real estate companies in Nigeria
Currently, four companies – UPDC, UAC Property, Union Homes and Skye Shelter Fund – are listed on the Nigerian Stock Exchange.
In the period between December 31, 2018 and January 31, 2019 there was mixed movement in share prices across the board. UPDC and UAC shares declined by 9.9% and 9.95% respectively to N5.95 and N1.72. Union Homes and Skye Shelter Fund’s share prices remained flat at N45.20 and N95.00 respectively.
Outlook for real estate in February
Minimal activities are expected within the real estate sector in February. The election season will slow down activities across various sectors including real estate. However, we expect activities within the sector to improve by H2’19, driven by increased government spending.