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‘Home is where the heart is. [It] is also where money is.’ For the average Nigerian, few things would be more rewarding and bring more joy than to own his own home. But for most Nigerians this will always be a dream. Even the aggressive savers find that the more they save the faster land and construction costs rise. For the vast majority of Nigerians that own their own home the route is to save a little and then buy a piece of land, to save a little more and then build the foundation, and step by step, over a five to ten year period, they complete their house. Is there a better way? Yes. Mortgage financing. Despite the high interest costs, overall, a mortgage can be cheaper than a prolonged multi-year built. Firstly, you don’t have to pay rent for the years you save and build, and secondly, your interest payments are somewhat offset by the increases in the cost of construction. Also, building in one go is normally much cheaper and safer than stop-and-start construction. If you did want to get a mortgage, how would you go about it? But first let us examine mortgage financing. What is it, and how does it work? Mortgage financing Mortgage is a long-term loan advanced to help individuals and businesses own their own properties. Mortgage financing took root in Nigeria when in 1977 the Federal Government established the Federal Mortgage Bank of Nigeria (FMBN) to address the housing needs of low and middle income earners in both the public and private sectors of the economy. But, by and large, FMBN was ineffective. To correct this, the government, in 1992, set up the National Housing Fund (NHF), a contributory fund by workers, to create a pool of capital from which any interested member can draw to meet his/her housing need. The Fund, managed by FMBN, in conjunction with primary mortgage institutions (PMIs), has also failed to address the acute housing shortages in the country, particularly in urban centres. Statistics have shown that the housing stock in Nigeria is 12 million units short of requirement. Challenges to date Less than 100,000 people have benefitted from FMBN, 29 years after it was established. The Managing Director of FMBN, Mallam Tanimu Yakubu, attributed this to ignorance. He said ignorance by workers of how NHF works was and still is largely responsible for the low utilisation of the Fund. This stems from the socio-cultural attitude of the people. Speaking on this, the Vice President, Mortgage Bankers Association of Nigeria (MBAN), Effiong Bassey, said: “… in Nigeria, people see house ownership as an inheritance thing, as a status symbol, and not as a necessity or vehicle for investment.” That explains why, he added, people who live and work in urban centres go to their villages to build houses, which “becomes a wasted and non-income yielding asset.” This attitude must change if housing delivery in the country must be effective. Why mortgage? The average income earner can actually own his home in two, three years by taking a mortgage. Mortgage gives you access to long-term, low cost capital. With mortgage financing, an individual can have his own home now, pay back the loan over a stretch of time and invest whatever other funds are available to him. Though the mortgage industry in the country, according to operators, is an emerging one, it still makes economic sense to take a mortgage and reduce the burden of having to source for a huge capital outlay to become a homeowner. How mortgage works Mortgage facilities by PMIs are provide Mortgage facility at commercial rates, typically between 17 and 19%, which is high, and the amortization or tenor of the loan is 10 to 15 years. According to a recent beneficiary, “I was offered a mortgage in June (last year) for a property in Abuja. The interest rate was 17% and the duration was 10 years.” So, assuming you are buying a property worth N10 million and you have to obtain a mortgage loan at 17% fixed rate, for 10 years, at the end of the tenor, you would have paid N17 million in interests added to the N10 million principal. These add up to make N27 million. This might look steep, but consider how long it would take you to save N10 million and factor in the ever increasing inflation rate and the rent you would be paying. Perhaps before you save the N10 million, say in seven years, the cost of building your own home could have doubled, meaning you now pay about N20 million or more for the property (building material costs in recent years have increased in line with inflation at about 12%). Add this to the cost of your rent, which is also increasing over time, as a tenant, and it could be N26 million to build your home seven years from now rather than take a mortgage. Mortgage is still a viable choice if you also consider that you can offset part of the loan burden if you put the house up for rent or lease. By that, you pay far less than the person who saved years to own a home, possibly half of the N27 million, while your tenant(s) pay the difference. As there are no secondary mortgage markets, the PMIs are still the dominant players in mortgage financing. Mortgage providers Players in the industry are the National Housing Fund managed by the Federal Mortgage Bank of Nigeria, the PMIs, and the building societies. The PMIs where one can access mortgage loans are: Union Homes Savings and Loans Plc., FirstBank Mortgages Limited, Intercontinental Homes, Ecobank Mortgages, Diamond Mortgages Limited, Afribank Estate Company Limited, Finacorp Building Society, Solid Trust Savings & Loans Limited, United Mortgage Limited, Wema Homes Savings & Loans Ltd, Aso Savings & Loans Limited, Refuge Home Savings & Loans, Consolidated Estate Building Society, Mutual Alliance Savings & Loans Limited, Mayfresh Savings & Loans Limited, etc. How to secure a mortgage The mortgage industry in Nigeria is a fledging one and PMIs have a hard time sourcing for funds. It is even harder to obtain and service a mortgage loan because of the conditions a mortgagor has to meet and the high rate of interest. However, there are three basic ways to secure a mortgage loan. The first is through the National Housing Fund for a self build. To access the NHF loan, which gives a maximum of N5 million at 6% interest rate, a beneficiary must: 1. Have an account relationship with a PMI 2. Be a contributor to the Fund for at least six months at 2.5% of his monthly salary 3. Show the PMI evidence of regular flow of income to guarantee the loan. 4. Apply for the loan 5. Have a piece of land with a C of O, approved survey, site, and building plans 6. Present a letter of consent to mortgage from the Fund to the PMI 7. Present Articles and Memorandum of Association/Certificate of Incorporation (if self employed) 8. Show priced bill of quantities/valuation report from registered surveyors and valuers (if hoping to buy rather than build). Usually, the amortization period is between 20 and 25 years. One can also take direct mortgage from the PMIs for either a self build or a buy. To do this: One must open an account with a PMI 1. The borrower must make, to the PMI, a minimum equity contribution of between 20 and 30% 2. He must apply by completing a mortgage loan form 3. Must present a financial statement of two years or more 4. Must produce evidence of cash flow: pay slips or statement of income. 5. The C of O to a piece of land must be produced 6. Priced bill of quantities is also needed (to build) 7. Layout/survey and approved building plans required 8. Letter of offer from vendor (to buy as against building) 9. Valuation report of property being purchased The amortization period here is usually between 5 and 10 years. Also, an intending homeowner can go through private developers. The developers build and sell to interested buyers. Some PMIs are also developers. They build and sell to the public. To buy using mortgage, one needs: 1. An account with the PMI 2. Letter of offer from vendor 2. Valuation report of property being purchased 3. To guarantee the loan; evidence of cash flow 4. A minimum equity contribution of between 20 and 27% 5. To apply by completing a mortgage loan form The amortisation period is usually between 5 and 10 years. Having submitted the above required documents, the mortgagor’s application is then assessed by the PMI, and if okay, the facility is granted him/her. Some PMIs require that the plot of land or property to be mortgaged be in an urban location, and some others require an insurance guarantee. Thus, with the mortgage facility, one can self build, buy from PMIs, or from private developers. Some institutional and private developers are the Lagos State Development and Property Corporation, Union Homes with the Ikorodu Owutu Estate Scheme, Palmview Estate Oko-Oba, Agege, Mulliner Towers, Ikoyi, all in Lagos; Abia State Housing Estate, Ehinmiri, Umuahia, and others, and Skye Bank with the development of Goshen Beach Estate and Femi Okunnu Phase II, APICO Shelter Afrique project in Uyo, etc. Risk A mortgage arrangement is usually safer than the multi-year build. For one, the PMI’s insistence on the C of O and other title deeds makes it unlikely that the mortgagor will build on a piece of land other than one legally acquired. Also, part of the conditions for mortgage is that professionals in the built environment must be involved; PMIs insist on reports from registered surveyors, valuers, etc. The result is that such properties are structural sound and are not likely to collapse. They are also legally constructed, so, there is no risk of demolition. It is important, however, to get the best possible deal while sourcing for a mortgage. If a mortgagor takes out a loan that stretches his finances and therefore becomes difficult to service, there is the risk of forfeiture of the property on which the mortgage was taken, plus his equity contribution and whatever amount he has repaid. So, before taking the mortgage, one must assess his needs and his means to know which he can handle. |
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