Mortgage Rates Stay High Despite Low Patronage | Independent Newspapers Limited
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Mortgage Rates Stay High Despite Low Patronage

Posted: Apr 21, 2016 at 11:17 am   /   by   /   comments (0)

Nkasiobi Oluikpe Lagos

Despite low patronage, Nigeria’s mortgage rates have remained stubbornly high at an average of 18 percent, Independent investigations have revealed.
Aside rates, prospective home owners are expected to make down payment of not less than 20 percent, depending on location.
Independent gathered that these conditions have made many prospective buyers and developers to develop cold feet, leading to low patronage of bank financing. However, the rates are still high for the average Nigerian.
In most climes, mortgage rates are pegged below 10 percent for affordability and the need to house the teeming population.
This has led to concerned members of the public to wonder why the simple law guiding demand and supply has refused to apply to the operations of the mortgage institutions. They assume that since people are running away from going to borrow money from the mortgage banks, the interest rates would have dropped.
But the situation indicates that rather than dropping or even remaining stagnant, interest rates keep going higher.
Experts in the real estate sector have attributed this to banks’ source and cost of funds.
“If the cost of funds is high, invariably, they say, the lending rates would be high since the banks need some margins to remain in business.”
They suggest that the only way the interest rates can only come down is if government wades into the situation and enforces some policies, which will review the Act that sets up some other funds lying fallow in the system.
“The cost of borrowing has not changed despite the low patronage and does not look likely to drop anytime soon”, Rotimi Akinlose, Managing Director of Residential Auctions Company (RAC), said.
He remarked that even the Nigeria Mortgage Refinance Company, which was supposed to have bridged the gap, has not really been effective since implementation.
According to Stephen Jagun, former Lagos State chapter chairman of the Nigeria Institution of Estate Surveyors and Valuers (NIESV), government alone is in a position to create cheap source of funds.
“What I expect the government to do is to create cheap source of fund for this people. For example, the National Assembly just realized that for almost two to three years now, there has been a small percentage of petroleum funds that is supposed to be set aside and given to the Federal Roads Maintenance Agency (FERMA), which has not been given them, presently running into billions.
“The first thing that comes to mind is that of pension. The average worker will not need the money for pension until about 20 to 40 years time. It is money that is just accumulating. The reason why you have all the corruption in the pension system is because these guys just look at big money in front of them,” he reckoned.
Jagun explained that before the crash in the stock market, these monies were used to buy stocks. So, he said, it is a cheap source of funds that they can divert into housing. Major reasons why Nigeria’s interest rates will not be single digit, he said, is because of the volatile nature of the economy and greed of the operators of the mortgage and commercial banks who would rather give monies to traders for a tenure of six months.
“Our banking system is based on cash and carry. The average bank will want to lend you money and get it back within two or three years. So, what do they do, they will give to people who are buying and selling, who will easily use the money to buy things in China within six months, make the money and pay back to the bank which is not possible with property. With property, averagely, you are not expected to recover your money until about 10 to 15 years or more. Our banks do not want to wait for that time.
“Most of our banks are shallow. Another reason is because they want to declare big profit. The banks are competing among themselves. They declare the profit they want to make ahead of time and share and force it among their departments to generate. So, it is a thing of trading. If you want to support mortgage, you can’t support it with trading. Mortgage is for somebody that wants to wait for a long time.”
Former Lagos State chapter chairman of the Nigeria Institution of Building (NIoB), Asimiyu Bashir, also corroborating Jagun’s points stated that it is only government’s policies that can force down the interest rate.
“If people key into the mortgage system, they will have a pool of money and the interest rates will come down. CBN has to come into it if they are serious, it should be made a government policy. The National Housing Policy that they encouraged people to key into how many people have so far benefited from it. Government has got to come up with policies that will bring the interest rate down if they are serious about eradicating the backlog of housing deficit we are having in this country. They should go out to those who are gainfully employed and sell them mortgage packages that will arouse their interest.”
Olayemi Shonubi, former Lagos State chapter chairman of the Nigeria Institute of Quantity Surveyors, highlighted that mortgage rate is dependent on the pricing of the deposit. Except if the basis on which the mortgage institution creates credit differs from the normal commercial banks’ rate, it will be difficult for the mortgage interest rates to come down.
“In other parts of the world, their mortgages are derived from long term funds like insurance or pension. That was why when the National Housing Funds was created, the whole idea was to source funds from pension and insurance. For instance, insurance companies were supposed to contribute 60 percent of their life and 40 percent of their non-life funds into the real estate sector at a very low interest rate.
“Based on that, mortgages were supposed to be created at the rate of nine percent. But in a situation where the primary mortgage institutions that are offering mortgages now source their deposits from the same market as the normal banking institutions, obviously, it will be at the same rate. If they get it at 11 to 12 percent, adding their own expenses, there is no way they will be lending at anything lesser than 16 to 19 percent. And for those who want to make more money, you will be looking at 19 to 22 percent. That is why the mortgage rates are high. In other parts of the world, when you talk about mortgages, it is usually in single digit. The moment it becomes double digits it becomes difficult to pay back.”
Speaking on accessibility of the pension and insurance funds, Olayemi insisted that, based on past experience, government has got to be careful over the funds too. “If you look at the Act that set up the National Pension Funds, it specifies the kind of areas that they can invest whatever money they source. Let the truth be told, people will misapply this money. They will abuse whatever money that is put in their custody.
“If not, there is no reason why anybody should legislate on how pension monies that are collected should be invested. But government has to be careful because if you go and put pension money in the capital market and you have the kind of crash that we had in 2008, that means people’s money will just be lost, then they will retire with no gratuity or pension to fall back on, like it happened in Europe.
“Ordinarily, they could have used that to fund the Lagos-Ibadan Expressway or any of the other routes that are viable where they can put toll gates and recoup the money back over the years. But because of the Act that sets up the pension fund, they cannot. Also, until our people decide to be honest and we are able to set up a proper check and balance to make sure that when these funds are taken, they are put to the right use.”