Esv Femi oyedele
The challenges of mortgage operation in Nigeria
A mortgage is an agreement (contract) between a mortgagor (borrower) and a mortgagee (lender) that gives the lender the right to take the property of the borrower if he or she fails to repay the money he or she has borrowed plus interest. Mortgage loan is used to buy or build a house. Mortgage loan is different from commercial loan taken with property used as collateral/security. A mortgagor is not a businessman but an individual who wants to procure a home as a basic need. Adam Smith mentioned in his treatise that there are three basic needs of man: food, shelter and clothing. Mortgage is a social aspect of housing provision as a non-commercial arrangement.
Elvis Presley sang “Home is where the heart is” and Professor Babatunde Agbola of Centre for Urban and Regional Planning stated that “housing is a bundle of joy”. But, except where government has legislated housing to be a social service to the citizens like Finland, not everybody will have his or her own property (landlord). Mortgage loan like any other loan are conditional. You have to meet some conditions and tick the check boxes before you can be qualified for a mortgage loan. A mortgagor in Nigeria must be eager to own a house; must have regular income; must have an account with a mortgage institution; must have at least ten percent (10%) of the cost of the property etc.
Mortgage is a popular and effective means of acquiring properties in the United Kingdom (UK), Canada and United States of America (USA). In these countries, mortgage loans are strictly for procurement of properties. In UK, a first-timer mortgagor is entitled to get a 5 year fixed premier standard mortgage loan at 2.51% initial rate and followed by 4.04% variable rate (2022 rate) because the first home a citizen gets is his or her basic right. Any other property acquired after the first property is called an ‘investment property’. Interest rate on loans for the procurement of investment property is at commercial rate. It is pertinent to emphasize here that mortgage loan is not another business loan but a child of necessity to ensure that the low income-earners of the society can own their houses as a basic need. In Nigeria, mortgage rate is between 16% – 19% irrespective whether you are first timer or veteran!
There are currently over 200 significant separate financial organizations supplying mortgage loans to house buyers in Britain with the Lloyds TSB Bank (Mortgage) and Nationwide Building Society having the largest share of the market. In America, the five biggest mortgage companies are Quicken Loans, United Shore Financial, Freedom Mortgage, Wells Fargo and LoanDepot. Fannie Mae (the Federal National Mortgage Association or FNAM) is a government-sponsored enterprise (GSE) established in 1938. Freddie Mac (Federal Home Loan Mortgage Corporation or FHLMC) was chartered by the US Congress in 1970 to keep money flowing to mortgage bankers (primary institutions).
Fannie Mae exists to expand the liquidity of home mortgages by creating a secondary mortgage market. It provides liquidity to the single family market by purchasing and guaranteeing mortgage loans made by lenders and issuing debt securities and mortgage-backed securities that attract global investors to finance housing in USA. Fannie Mae buys mortgages from larger commercial banks, while Freddie Mac buys from smaller banks. From the above, we can see that mortgages are better provided by private lenders with government regulation. Federal Mortgage Bank of Nigeria (FMBN) is better structured as lender to lenders. It is also noteworthy to mention that employment rate in a country is directly related to the success of mortgage operation.
Also, government fiscal policy committee controls mortgage interest rates. Refinancing your mortgage allows you to pay off your existing unfavourable mortgage and take out a new mortgage on new terms. You may want to refinance your mortgage to take advantage of lower interest rates, to change your type of mortgage, or for other reasons. Mortgage industry success is a factor of the advancement of an economy. While mortgage industry is thriving in advanced economy, it is struggling in the Third World countries.
The reasons why mortgage industry is not successful in Nigeria are: tradition and culture: – like the trend in Islamic nations, most prospective home buyers in Nigeria do not subscribe to the idea of getting loans to buy their properties. Only few do and their neighbours do not see it as an achievement when you get your house with loan; corruption rate is high and most prospective buyers of houses prefer to fund their purchase with proceeds of corruption to mortgage loan; the nature of our financial industry do not allow single digit interest rate for home acquisition. It is therefore not easy to use loan to finance low to medium income earners’ homes in Nigeria. Majority of Nigerians are poor with Nigeria being the capital of world poverty.
An average Nigerian cannot get money to pay back mortgage loan and that is why rate of default is high. There is also poor data management. Mortgage which has discriminating interest rate depends on efficient data management to succeed. Housing policies are cultural. The financial status of the masses and the economic situation will determine the type of measures to be used to solve a societal challenge. To resolve the housing crisis in Nigeria, the government should consider social housing, subsidy for low-income earners’ homes and ensure the unemployment rate is reduced instead of strengthening the capacity of the government mortgage bank.
ESV. Olufemi Adedamola Oyedele, an Estate Surveyor and Valuer based in Lagos.