The inability of prospective homeowners to readily come up with the required equity contribution on mortgages has been identified as one of the factors slowing down the process of mortgage origination in Nigeria, Housing news investigation has revealed. It also partly explains the nation’s huge housing deficit of more than 17 million homes.
Equity contribution is the initial amount of money to be paid by a potential home owner towards the purchase of a property. Under the National Housing Fund (NHF) scheme, managed by the Federal Mortgage Bank of Nigeria (FMBN), a borrower is entitled to a maximum loan of N15,000,000, or as determined by the bank.
Borrowers are expected to make equity contribution based on the loan amounts as follows: N15 million — 30 percent (N4.5 million); N10 million — 20 percent (N2 million); and N5 million — 10 percent (N500,000). No individual can be given a loan in excess of 90 percent of the cost or value of the property to be mortgaged under the scheme.
Housing News findings show that majority of applicants for the Lagos State Home Ownership Mortgage Scheme (Lagos HOMS) did not succeed in owning homes under the scheme mainly due to their inability to come up with the required 30 percent equity contribution of the value of their desired properties. Under the scheme, applicants are required to make 30 percent down payment (equity contribution). This amounts to a down payment of N1.5 million for a N5 million house, which is beyond the ability of an average salary earner.
According to the Chief Executive Officer of Lagos Mortgage Board, Mr Akinola Kojo Sagoe, as at March 2015, a total of 1,716 people have applied for the scheme, out of which 1,348 (78.6 percent) have been pre-qualified and over 600 applicants have emerged as beneficiaries. This shows that less than 45 percent of those pre-qualified for the scheme or about 35 percent of total number of applicants, actually emerged as homeowners.
This development has prompted the state government to initiate the Rent-to-Own housing policy which will waive the 30 percent equity contributions largely for artisans, traders and non-salary earners in the state. Governor Babatunde Fashola said the rent-to-own scheme would allow artisans and traders to access Lagos HOMS without having to pay the 30 percent down payment before they move into their apartments.
“We are working on the new housing policy. It simply means that once they are qualified for the scheme, they will be allowed to move in under the rent-to-own scheme. The beneficiaries will be paying rent which will eventually lead to mortgage. But in an instance where a beneficiary loses his job and cannot continue with the scheme after some years, such a person will get back all he has paid. Already, another person will be waiting to buy the apartment,” he stated.
Similarly, Dr Ngozi Okonjo-Iweala, Minister of Finance and Coordinating Minister of the Economy, while giving a progress report on the 10,000 mortgages scheme launched last year by the federal government under the Nigeria Housing Finance Programme, noted the challenge people face in getting bulk money to pay off the mortgage equity. Under the scheme, an initial payment of 20 percent of total cost of house is mandatory.
She said that only 33 of the over 66,000 applicants have been granted mortgages after being successfully pre-qualified. “66,000 people applied for the scheme. As at date, 23,000 have been pre-qualified and 9,700 have been cleared as being eligible to get it. And 33 people have actually had money being disbursed to them to own a home,” she said. The minister also noted that the federal government is considering the Rent-to-Own mechanism to help people own their own houses.
“We are trying to work out down the line, so that if you cannot put a down payment, you can after years of renting, be able to own your own home,” she added.
Prof. Charles Inyangete, CEO, Nigeria Mortgage Refinance Company (NMRC), also agreed that the slow take-off of affordable mortgages scheme under the National Housing Programme is partly due to the equity deposit requirement. He however noted that concerted efforts have been made over the past year to address the problem. “A lot of the people actually found out that the properties they want are much more expensive than they expected and so the deposit is a bit of a challenge.
However, with this new arrangement coming in, we would see that becoming easier. We are also reaching out to the insurance industry to bring in a new product that allows you to pay through insurance for your deposit. “We are reaching out to developers as well, not only for the purposes of affordability but for quality also, and to ensure that they don’t just build, but they build something that Nigerians want. Something that looks good and still affordable.
We have drafted and completed a model mortgage and foreclosure law which we are going to put as a pilot through the 21 states that signed up, so that process is also starting. That will bring to bear more standardized and more streamlined mortgage process. We do not have to go through the NASS. We drafted it as a state law. So, each state will have to adopt it by itself, that way it will be faster to pass into law,” he stated.
Meanwhile, the coast is now clear for pension fund to be used as equity contribution on mortgages. In a chat with Housing News, Prof. Charles Inyangete, CEO, Nigeria Mortgage Refinance Company (NMRC), said the nation’s pension fund regulator, Pension Commission (PenCom), has amended its guidelines to accommodate this.
“If you do not have a 20 percent down payment, you would not qualify to be refinanced. Remember we are not primary lenders, we refinance. But the primary lenders have to meet our underwriting standards. So there is a 20 percent requirement, and so in order to make sure that it does not become a burden, we have reached out to other industries. Now the pension industry will allow you to use your pension as part of paying your deposit for your home.
” The Nigeria Pension Commission (PenCom) has changed its rules and guidelines to allow that to happen,” he stated. The pension fund has so far pooled under the contributory pension scheme is over N4.5 trillion.
Speaking with Housing News on the relevance of the insurance industry to the mortgage sector, Mr. Olorundare Thomas, Director General of the Nigerian Insurers Association (NIA), said: “The insurance industry is quite central to sustainablity of policy initiatives within the housing sector. Much more so, when you talk about mortgage. It’s a case of, right from the beginning to the end; insurance becomes quite relevant because the lender is interested in recovering his facilities.
So whatever happens to the borrower, the lender is quite interested. And the insurance sector is there to provide the security and assurance that will re-establish the fact that what is being given out is not going to be lost in the process. “For example, mortgage life insurance will guarantee recovery in the event of death. Of course, there are riders, should in case there is an accident or something happens to the borrower and he loses his job and cannot continue, the insurance can also package a product that will take care of that.
When even the building is in the course of construction, if anything happens to it, insurance can also take responsibility, a product is also available to take care of that. When the building is standing, and something happens like flood, fire and all of that, insurance takes responsibility. So in the totality, insurance is there to re-assure the lender that the initiative is not misplaced, is sustainable and that they are there when the need arises.”
NMRC is a vehicle set up to bridge the funding cost of residential mortgages and promote the availability and affordability of good housing to working Nigerians by providing mortgage lending banks with increased access to liquidity and longer terms funds in the mortgage market. Its role is to provide mortgage-lending institutions with access to long-term finance at an affordable interest rate, thereby enabling mortgages to be issued by these institutions to Nigerians, at longer tenors and affordable rates