Stocks to watch, comprises the top gainers and losers from the previous week, as well as companies that are expected to have corporate actions this week.
Stocks to watch is not a Buy/Sell/Hold recommendation.
Infinity Trust Mortgage Bank Plc
Infinity Trust Mortgage Bank Plc takes the first spot in this week’s watchlist, as the company will be holding a Facts Behind the Figures session today at the Nigerian Stock Exchange (NSE).
While the company has not disclosed this in any form, firms usually hold such events when a fund raise or some other key development is at hand.
Tripple Gee Plc
Tripple Gee Plc takes the second spot in this week’s watchlist, as the company will be holding its Annual General Meeting (AGM) today. AGMs are opportunities for management teams to unveil plans for the rest of the year.
UACN Property Development Company (UPDC)
UACN Property Development Company has a spot in this week’s watchlist, as the firm was the best performing stock last week, appreciating by 51.52% to close at N1.50.
AIICO Insurance Plc was one of the top gainers last week, hence its place on the watchlist. Investors took positions in the stock, once news of a potential investment by private equity firm, Leapfrog, was announced.
While details of the price at which Leapfrog is taking a stake are unknown, from precedence, it would be at a premium to its current market price.
University Press Plc
University Press Plc has a spot in this week’s watchlist, by virtue of being one of the top 10 losers for last week. The stock declined by 6.25% to close at a 5–year low of N1.05. Players in this space have struggled and the stock could tank further, as there are no compelling reasons for an uptick.
This might not be the best of times for prospective homeowners and developers, following the apex bank’s recent removal of interest cap rate on mortgage finance for primary mortgage banks in the country.
The impact of the action, housing experts said, could further increase interest rate charged by the banks and worsen accessibility to housing finance by Nigerians. Before the Nigeria Mortgage Refinance Company (NMRC) started the refinancing of some of the banks, interest rate rose to between ‘22 and 26 per cent’ but since the start of refinancing, most of the banks giving the loans were getting back to 17 and 17.5per cent rate in the market for commercial mortgage institutions.
Despite the existing order, most Nigerians couldn’t avoid taking home mortgages from PMI, which is one of the surest and easiest ways of owning your own home due to high interest rates. Statistics show that with over 17million housing deficit, less than 50,000 citizens have access to housing finance.
The mortgage market is a place where the lending institution directly loans money to the borrower, or the person seeking to purchase a house or property. The lender is responsible for drafting the contract and creating the terms of the loan. The Central Bank of Nigeria (CBN) had removed the interest rate cap regulation and lending fees for mortgage financing in the country recently. The bank said the move was due to “some implementation challenges” regarding the mortgage finance section of its 2017 “Guide to Charges by Banks and Other Financial Institutions in Nigeria.”
It stated that henceforth the section of the document that deals with mortgage financing has been amended, and now has the word, “negotiable” to replace the interest rate cap. “The CBN in 2017, issued the Guide to Charges by Banks and Other Financial Institutions in Nigeria, to moderate charges on various products and services offered by banks and Other Financial Institutions (OFl’s) in Nigeria.
“Our attention has been drawn to some implementation challenges in respect of Part 2 Section 2.1 .3 (Mortgage Finance) in respect of the maximum cap of MPR + five per cent placed on mortgage finance rates. The CBN after due consideration of the concerns of stakeholders, hereby amend Part 2 (A & B): interest Rate and Lending Fees “Subsection 2.1 .3” Mortgage Finance to read “Negotiable”. Please note that “subject to a maximum of Monetary Policy Rate + five per cent” is no longer applicable. This new provision took effect from September 9.”
On the implication of the new policy on housing, a mortgage bank operator who pleaded anonymity explained that the rate would now be determined by the risk profile of the intending customers or investors. The source explained that high-risk profile projects, would lead to higher interest rate while low risk projects would bring about a lower interest rate.
“Removing the cap would still mean that the market would determine the interest rate. In the interim, initially the rate would go up. This would help the mortgage banks to reduce their exposure and reduce non-performing loans. The interest rate will be market driven. “Customers with loan-to-value of greater than 70per cent would be required to access the Mortgage Guarantee Scheme. The cap was introduced in 2017 but wasn’t really enforced. In my opinion, this is removing a redundant guideline.”
In his views, a past president of the Nigerian Institution of Estate Surveyors and Valuers, Mr. Joe Idudu said the implication is to further kill the mortgage industry in Nigeria and reduce the effect of mortgage. “Instead of the apex bank moving the mortgage industry forward, the new policy means that the interest could be any amount now and so anybody could charge anything. That is most unfortunate because we really need to develop our mortgage industry so that young people could borrow and build at a sensible interest rate. The policy is saying that saying anybody who is providing money to loan could negotiate.
“I have always-express concerns about the housing deficit especially in our urban areas. It is obvious that the lack of an effective mortgage system is the cause of the entire problem in Nigerian housing sector. You can’t call a lending that is over 20 per cent interest rate, a mortgage. You can’t call a loan that is for between four and five years a loan. Mortgage must be over a long period of time.”He emphasised that the way to encourage every citizens to own their own homes is to ensure that there is an effective mortgage based on policy that works and the mortgage is made available to people once they have employment and paid salary regularly so that they deduct mortgage obligations at source.
He explained many of the developers executing projects with borrowed money but look forward to buyers may discover at the end of the day that many of buildings would remain untaken. He posited that if many buildings are left untaken that means new one would not come up.”Contributing, the past chairman of the Apapa branch, Nigerian Society of Engineers, Dr. Ombugadu Garba said the interest rate could be at lower rate than what is in operation if the operators could fine-tune it.He added that it would be a very good policy that could help civil servants and those who are sourcing funds for their mortgage houses if well implemented.
“Government should lay a good foundation that encourages people to borrow money and build house before retirement. The point remains that if you are bringing a policy, you have to anticipate the challenges that may arise in the cause of implementation. One problem of the civil servants is that when you are not sure of where to lie your head after retirement, is the root of corruption to get extra source of income through illegal means”, he stated.
Similarly, the President, Nigerian Institute of Building, Mr. Kunle Awobodu said mortgage financing was a brilliant idea when it was introduced but expressed concerns that the challenge for the housing sector has been on its implementation. He stated that the impact of the policy would be felt by the effectiveness in the implementation process by the operators.
Mortgage rates were on the rise in the week ending 12th September. 30-year fixed rates rose by 7 basis points to 3.56%, partially reversing a 9 basis point fall in the week prior.
In spite of the rise, 30-year rates continued to sit at levels last seen in November 2016, according to figures released by Freddie Mac.
Compared to this time last year, 30-year fixed rates were down by 104 basis points.
More significantly, 30-year fixed rates are down by 138 basis points since last November’s most recent peak of 4.94%.
Economic Data from the Week
Through the first half of the week, economic data was on the lighter side. July JOLTs job openings and August inflation figures provided direction.
On Tuesday, while job openings eased slightly, a pickup in quit rates continued to reflect solid labor market conditions.
While the markets continue to price in a FED rate cut next week, there was also a pickup in inflationary pressure in August. The core Producer Price Index rose by 0.3%, month-on-month, which was better than a forecast of 0.2%. In July, the index had fallen by 0.1%.
While the stats were positive for Treasury yields, it was a shift in sentiment towards the U.S – China trade war that delivered a pickup in yields and ultimately mortgage rates.
Freddie Mac Rates
The weekly average rates for new mortgages as of 12th September were quoted by Freddie Mac to be:
30-year fixed rates increased by 7 basis points to 3.56% in the week. Rates were down from 4.60% from a year ago. The average fee remained unchanged at 0.5 points.
15-year fixed rates also increased by 9 basis points to 3.09% in the week. Rates were down from 4.06% from a year ago. The average fee fell from 0.6 points to 0.5 points.
5-year fixed rates rose by 6 basis point to 3.36% in the week. Rates were down by 57 basis points from last year’s 3.93%. The average fee fell from 0.4 points to 0.3 points.
According to Freddie Mac, pipeline purchase demand continues to pick-up, with purchase mortgage applications up by 9%, year-on-year.
Rising demand reflects the healthy underlying consumer economic fundamentals including a low unemployment rate, solid wage growth, and low mortgage rates.
In spite of a weakening in the manufacturing sector, consumer sentiment has remained resilient, supporting strong home purchase demand.
Mortgage Bankers’ Association Rates
For the week ending 6th September, rates were quoted to be:
Average interest rates for 30-year fixed, backed by the FHA, decreased from 3.80% to 3.76%. Points decreased from 0.32 to 0.31 (incl. origination fee) for 80% LTV loans.
Average interest rates for 30-year fixed with conforming loan balances fell from 3.87% to 3.82%. Points increased from 0.34 to 0.44 (incl. origination fee) for 80% LTV loans.
Average 30-year rates for jumbo loan balances decreased from 3.94% to 3.84%. Points rose from 0.24 to 0.34 (incl. origination fee) for 80% LTV loans.
Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, rose by 2% in the week ending 6th September. In the week ending 30th August, the Market Composite Index had fallen by 3.1%.
The Refinance Index increased by 0.4% in the week ending 6th September, leaving the index up by 169% from the previous year. The Index had tumbled by 7% in the week ending 30th August.
The share of refinance mortgage activity decreased from 60.4% to 60.0%, following on from a fall from 62.4% to 60.4% in the week prior.
According to the MBA, the continued fall in mortgage rates over the holiday season left rates close to 3-year lows. While refinances were unchanged, August had been the strongest month for the current year.
For the week ahead
It’s a busy first half of the week ahead.
Key stats include September’s NY Empire State Manufacturing Index and August industrial production figures on Monday and Tuesday.
We can expect some sensitivity to the numbers ahead of a particularly important session on Wednesday.
While economic data due out on Wednesday is limited to August building permits and housing starts, the FED will deliver its interest rate decision.
The markets have priced in a 25 basis point rate cut. Recent stats suggest that there’s no reason for a more aggressive cut.
Assuming the FED cuts by the 25 basis points, the economic projections, rate statement and press conference will have the greatest influence.
A dovish rate cut would lead to a reversal in Treasury yields and mortgage rates. Based on the stats and FED Chair Powell’s last speech, the projections should show that FOMC members expect the U.S to avoid a recession.
A hawkish rate cut would give mortgage rates another boost, assuming that there are no major geopolitical events to rock the boat.
WASHINGTON (AP) — U.S. long-term mortgage rates rose this week but remained at historically low levels.
Mortgage buyer Freddie Mac said Thursday the rate on the 30-year, fixed-rate mortgage increased to 3.56% from 3.49% last week. Average rates on the benchmark loan have remained below 3.6% for four straight weeks — the first time that’s happened since the fourth quarter of 2016.
A year ago, the 30-year rate stood at 4.6%.
The average rate for 15-year, fixed-rate home loans rose to 3.09% from 3% last week.
Mortgage rates fell sharply over the summer as a slowing global economy and tensions from the trade war between the U.S. and China have caused interest rates on government bonds to tumble. The yields on government bonds, especially the 10-year Treasury note, influence long-term mortgage rates.
The trade concerns have appeared to ease in recent days and sentiment has brightened in global stock markets. Interest rates on government bonds have ticked up. China said Wednesday that it will exempt U.S. industrial grease and some other imports from tariff increases, though it kept in place penalties on soybeans and other major U.S. exports ahead of negotiations next month.
As a gesture of “goodwill,” President Donald Trump said on Twitter that the U.S. agreed to a two-week delay in a planned increase in tariffs on some Chinese imports. The moves could indicate that both sides are settling in for an extended conflict even as they prepare for talks in Washington aimed at ending the dispute that threatens global economic growth.
Investors continue to expect the Federal Reserve will cut interest rates at its policymaking meeting next week in another bid by the central bank to help maintain U.S. economic growth. The Fed lowered its benchmark interest rate in July by a quarter point, its first cut in a decade
Freddie Mac surveys lenders across the country between Monday and Wednesday each week to compile its mortgage rate figures.
The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates.
The average fee on 30-year fixed-rate mortgages was unchanged this week at 0.5 point.
The average fee for the 15-year mortgage fell to 0.5 point from 0.6 point.
The average rate for five-year adjustable-rate mortgages rose to 3.36% from 3.30% last week. The fee slipped to 0.3 point from 0.4 point.
This story has been updated to correct that the Fed lowered, not raised, its benchmark interest rate for the first time in a decade in July.
Central Bank of Nigeria (CBN) is at the final phase of commencing mortgage subsidy, with plans for the country to have a single-digit interest rate before the end of 2019, an Abuja-based industry player told Businessday on Tuesday.
According to the source that is part of the committee working on the mortgage policy in Nigeria, the recent removal of the cap MRP+ 5 percent on mortgage interest rate by the apex bank is in line with the plans for the regulator to achieve the single-digit mortgage rate.
“The new policy is in preparation for the single digit interest on mortgages. The CBN has gotten to the board of governance for approval and before the year ends they would have commenced the subsidy and mortgages will be accessed with single digit interest,” the source said on the condition of anonymity.
High mortgage rate is considered one of the key culprits of Nigeria’s housing challenge. Typical mortgage in Nigeria ranges between 7-10 percent for Federal Mortgage Bank of Nigeria (FMBN) and between 15-25 percent for commercial mortgage institutions, one of the highest in the world.
This has made mortgage as a means of acquiring properties in Nigeria a less attractive option especially for many whose purchasing power was eroded from the country’s five quarter recession.
With the highest population in Africa, Nigeria has housing deficit of more than 17 million units and more than 90 percent of new homes that are built in the country utilise funds from personal savings.
With single-digit interest rates in some other countries, mortgage industry contributes a significant amount to economic growth and development this is however not the case in Nigeria as the roaring inflation rate and the attendant high mortgage rate has not only dampened housing demand but has reduced developers’ investment appetite.
Africa’s largest economy has one of the world’s lowest mortgages to Gross Domestic Product (GDP) ratio at 0.6 percent. This lags Ghana’s 2 percent, South Africa’s 30 percent and crawls after the US and UK rates of 60 percent and 70 percent, respectively.
“The biggest problem in the sector is high cost of the very limited mortgage that is available. If they can develop policy to ease housing finance, it will be impactful,” Wole Olabanji, the CEO of Cobuildit, a Lagosbased real estate firm, said.
On the September 6, 2019, the CBN said in a circular signed by Kevin Amugo, director, financial policy and regulation department, that the “maximum MPR + 5%” was no longer applicable to all financial institutions in Nigeria.
According to industry players, the new CBN policy could see mortgage rate climb even higher than the current rates, as financial institutions will no longer have a regulated cap added to the MPR.
“I think the Central Bank is trying to see if the market can regulates itself,” Roland Igbinoba, founder, Pison Housing Company, told Businessday by phone.
FMDQ Securities Exchange Plc has revealed plans to introduces mortgages to boost trading in the nation’s capital market.
The Chief Executive Officer, FMDQ, Mr Bola Onadele.Koko, said in an interview with Bloomberg that the lack of housing finance was one of the reasons why the capital market had not grown as it should.
He stated that there should be 30-year mortgages for Nigerians at reduced interest rates.
Onadele said, “If you want 70 per cent of the people to own their own houses, you cannot expect them to borrow at 20 per cent.
“Most people save all their working lives to be able to buy or build a home, leaving them with little savings to invest in financial markets. On the other side of the spectrum, lenders in the country rely on short-term deposits when mortgages require long-term financing.”
Onadele noted that there were only about 50,000 home loans in the country.
He said the Exchange was working on a blueprint, with the support of other financial institutions, such as the International Finance Corpoartion, Central Bank of Nigeria, Securities and Exchange Commission and the National Pension Commission.
He added that the blueprint would be presented to President Muhammadu Buhari next year.
Onadele said, “The proposals will identify policy measures through which the government can provide an enabling environment and facilitate single-digit interest rates.
“The right policies will trigger the inflow of private capital from foreign and local investors into the country. For instance, rather than subsidise gasoline (petrol), the government can channel the funds into cheap housing loans.”
Onadele said the FMDQ was working to attract more foreign capital into the country by playing the role of a central counterparty clearing house to reduce risk for investors.
He said the FMDQ Clear unit was expected to employ at least 20 people within three months of operating, adding that they were waiting for the legislation to be signed into effect by the President.
Investopedia defines mortgage as “a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments”. Simply put, a mortgage is a loan granted by a financial institution to a borrower for the purchase of a house, with the purchased house serving as security for the loan.
The practice of acquiring residential homes through mortgage has been around for hundreds of years, with some scholars tracing it as far back as the 12th century. However, it was not until the 1930s that what has come to be known as the 30-year mortgage started – with funding provided not by banks, but by insurance companies. The US Federal Housing Administration (FHA) is credited with catalyzing the growth of modern mortgage by lowering the down-payment requirement at that time (the 1930s) from 80% to 20%. It also offered mortgages of 15 years (compared to 3-5 years then existing) and eventually extended mortgages to 30 years we now have.
In Nigeria, the idea of acquiring a home with a mortgage is still not widely accepted. A number of factors have been adduced for this: high interest rate, delay in processing mortgage application, high home prices, cumbersome foreclosure process, and general aversion to credit, etc. many people prefer to accumulate capital and build – something many unfortunately do not end up achieving. In some communities and ethnicities, the man who acquired his home through mortgage is regarded as not being ‘man’ enough. After all, the house he lives in does not belong to him; and he could have his family and belongings thrown into the streets should he default in his mortgage tomorrow! Ironically, the same person who loathes the idea of a mortgage (of say 10 years) may not have a problem paying rent for 20 years!
While not downplaying the risk of foreclosure in the event of default, it is most times the lender’s last option.
One of the real reasons why mortgage adoption/acceptance is low in Nigeria is the low level of awareness about the benefits of mortgage. Whereas there is a general believe that mortgage interest is astronomical, unreasonable and unaffordable, empirical data has shown (as will be demonstrated shortly) that the value derived from taking up a mortgage far outweigh these misconceptions.
Let’s take an example:
Assume a 2-bedroom apartment is rented annually for N800,000.00. Let’s assume further the following:
Most people who are averse to mortgage on the grounds that it is expensive never consider the equity that is built over the mortgage period. From the illustration above, an estimated equity of N21.5 million will be built over a 10-year period. In reality, this could be significantly higher, as the annual property growth rate of 6% used in the illustration is very conservative. Under the Personal Income Tax Act, mortgage interest on owner-occupied property is wholly tax -deductible. In the illustration above, there will be a tax savings of N2.2 million over the duration of the mortgage.
The benefits of taking a mortgage become even more significant if the mortgage is refinanced. Thankfully, Nigeria Mortgage Refinance Company (NMRC) stands ready to refinance all qualifying mortgages. If the example above were refinanced and the mortgage interest reduced by just 100 basis points (to 17%), tax savings will be N2.0 million, while home ownership benefits will increase to N16.1 million! In addition, NMRC refinances mortgages up to 15 years, thereby lessening the cashflow impact on mortgagors.
When then is the best time to take a mortgage? The answer is simple and clear: the best time was 10 years ago! But it’s not too late to start today – first by opening a mortgage savings account or talking to your bankers. Visit www.nmrc.com.ng for a list of mortgage lenders whose mortgage loans can be refinanced by NMRC.
Despite recent data from Freddie Mac showing that more than 80% of renters view renting as more affordable than buying a home, new data from Bank of America shows that the vast majority of renters who made the plunge into homeownership have no regrets about their decision.
In fact, the new report from Bank of America shows that 93% of people who bought a home are happier than they were when they were renting. The study, which is based on a national sample of more than 2,500 people, asked several questions, including “Does owning a home make you happier than renting?”
To that question, 93% of the respondents answered yes, while only 7% said no.
Beyond that, more than 80% of homeowners said they wouldn’t go back to renting.
According to the study, 88% of homeowners agree that buying a home is the “best decision they have ever made,” while 79% believe that owning a home has changed them for the better.
As for what contributes to homeowners’ satisfaction with their decision, a large percentage cited the “emotional equity” that’s built up when you buy a home as opposed to the financial benefits that are so often touted as tenets of the “American Dream” of homeownership.
According to the study, more than half of current homeowners define a home as a place to make memories, while 42% view a home as a financial investment.
Another emotional benefit is the relationship with family that is built by owning a home, according to the study.
The study showed that two-thirds of current homeowners believe their relationships with family and loved ones have changed for the better since they bought a home, while 78% are satisfied with the quality of their social life, which is much higher than the amount prospective homebuyers who say they’re satisfied with their quality of life (58%).
Another benefit of homeownership is that it allows buyers to both enjoy their hobbies and take up new ones.
According to the study, 82% of homeowners said they were satisfied with the amount of time they spend on their hobbies and passions since purchasing a home, while three out of four homeowners pursued new hobbies after buying a home.
So, beyond building up wealth and equity as a homebuyer, you can add quality of life and happiness up as benefits of homeownership, too.
The Central Bank of Nigeria (CBN) on Friday removed the cap on interest rates for mortgage finance by the Primary Mortgage Banks (PMBs), effective September 9, 2019.
In a circular to all other financial institutions in the country, dated September 5 and signed by Kevin Amugo, director, financial policy and regulation department, the CBN said the “subject to a maximum of MPR + 5%” is no longer applicable.
The CBN in 2017, issued the guide to banks and other financial institutions, to moderate charges on various products and services offered by banks and other financial institutions in Nigeria.
Consequently, the CBN said it’s attention has been drawn to some implementation challenges in respect of part 2 section 2.1.3 (mortgage finance) in respect of the maximum cap of MPR +5% placed on mortgage finance rates.
The CBN after due consideration of the concerns of stakeholders, amended the part 2(A and B): interest rate and lending fees subsection 2.1.3 mortgage finance to read “negotiable”. The measure is part of efforts to boost home ownership in a country where only 50,000 people out of almost 200 million have housing finance.
The government faces a daunting challenge to close a shortage of 17 million houses.
Nigeria has no formalized title-deeds registry and most homes consist of informal structures on land passed down through generations. Rapid urbanization is also causing a proliferation of slums and shanty towns.
Nigeria’s mortgage industry is small, with the equivalent of $260 million in loans, compared with more than $90 billion for South Africa.
Nigeria’s total mortgage debt to gross domestic product is estimated at 0.6 percent versus 2 percent in Ghana, according to the Nigeria Mortgage Refinance Corporation NMRC. In South Africa, that ratio is 20 percent, according to Moody’s Investors Service.