Mortgage market in year of pandemic

The mortgage market in Nigeria has been in struggling mode over the years. Covid-19 pandemic came to make worse an already bad situation. Like many other industries, the market experienced tough time in 2020 as a result of the pandemic.

Above everything else, the pandemic caused unprecedented spikes in mortgage loan repayment defaults in the mortgage market and changed the entire home purchasing process.

Globally, the pandemic caused significant job losses and in Nigeria, this was quite significant, leading to income uncertainty for home buyers and homeowners alike. Where such facilities were available, the virus also shocked the credit markets supplying capital to the mortgage industry.

In Nigeria, the social distancing rule affected both demand and supply of housing and market transaction almost dried up, save for the use of technology which enabled product suppliers to showcase their products and also meet potential buyers in a virtual market.

In a very significant way, the pandemic affected the mortgage market as many potential borrowers suffered either job loss or pay-cut, leading to reduced income and consumer purchasing power.

The market’s familiar problem of insufficient liquidity followed it to the end of 2020. Low capital base, lack of long term deposit funds and high cost of funds continued to limit the operations of the primary mortgage banks (PMBs) and this, according to experts, also impeded their growth and capacity to do transactions that could impact the housing sector.

“Unless there is sufficient liquidity to support the PMBs, they would lack the capacity to create good mortgages for the secondary mortgage institution, the Nigerian Mortgage Refinance Company (NMRC), to refinance,” Femi Akintunde, GMD, Alpha Mead Group, reasoned.

Akintunde who spoke with BusinessDay Sunday in an interview, noted that the current situation where the NMRC has the fund but is unable to deploy it to refinance mortgages from the PMBs due to their limited capacity is a misnomer, advising that this has to be corrected urgently in order for the country to make meaningful progress towards bridging its housing gap.

Low capital base coupled with the prevailing economic conditions so impacted the operations of the PMBs that a good number of them were unable to meet their contractual and statutory obligations to their clients and regulators respectively.

At a time, the Nigeria Deposit Insurance Commission (NDIC), one of the regulators of the sector, was quoted as saying that the inability of as many as 15 PMBs to pay their insurance premium was an unfortunate situation that put the customers at risk.

The pandemic affected the entire economy and, as its sub-sector, mortgage operators say that since the larger economy is not doing well and the mortgage sector is not insulated from what is happening, their case is not unexpected.

“We know what has happened to oil price and the forex market. These have affected everything in the economy. In the case of oil, both the volume and the price went down. All these affected consumer purchasing power. Don’t forget that the balance sheet of the mortgage banks were not strong abnitio”, said Ayodele Olowookere, a mortgage operator, in an interview.

He confirmed that the problems of the mortgage banks revolved around their small capital base and so there wasn’t much they could do. “For all the money that I have, unless I raise additional capital, I don’t think I can do 1,000 mortgages. To do mortgages, you need long term funds and that is the only way you can do long term mortgages”, he said.

Udo Okonjo, vice chair/CEO, Fine and Country West Africa, believes that “the underlying fundamental for mortgage growth is that we have to have saving culture and large financial base because mortgages are long term funds. In an ideal world, you will be talking about 20-25 years mortgages at very low interest rate”, Okonjo added.

Okonjo reasoned that Nigeria doesn’t really have a real estate sector because, according to her, “what we are doing is just scratching the surface. If we really want to create wealth through real estate which is one of the major ways the developed world creates wealth, then we have to develop and grow the mortgage sector.”

But Olowookere believes that mortgage banks and their operators won’t go out of business because, as he put it, “we are here to stay and grow this sector”.

As operators, he said, they were looking at the informal sector because people in this sector are not collecting salaries, but earn huge and regular income. “So, we are finding creative ways of bringing them into the net. We are also looking at new ways to raise capital by bringing in more shareholders,” he said.

He canvassed government’s intervention in the sector, arguing that if the mortgage industry is well run and there is a good policy thrust to support its operations, it will diversify the economy with job creation.

“We have been demanding, since 2005, for a change in the Land Use Act of 1978 to no avail. There is need to quicken processes leading to title transfer and building approval. Cost and time of perfecting titles need to change.

“The Federal Mortgage Bank of Nigeria (FMBN) needs to be restructured to meet the demands of today. The National Housing Fund (NHF) also needs to be restructured for same purpose. There should be special focus on the industry and how it is funded”, he said.

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