What qualifies a borrower for mortgage lending
Manos entregando una casa
In more cases than one, many people, particularly the poor, who want mortgage loans run away from same because there is this predisposed thinking in them that they don’t have all it takes to access the loan. The loan conditions, in their thinking, are too difficult for them to meet. Not many know that there is basically one thing that separates them from mortgage loan and that is a good job with fat pay. There could be other factors, unarguably, but this is at the core of all considerations.
This thinking, strictly speaking, is not misplaced or out of the way because Nigeria is an ‘interesting’ country where virtually everything goes to the man with cash and ready to pay. It is, indeed, a country where the poor pays more because he is more exposed to risks and has next to nothing to hedge against those risks. Nowhere else is this more obtainable than in mortgage lending.
Technically speaking, there is no mortgage of any form in Nigeria. Apparently because of the commercial interest rate charged, mortgage lenders still anchor their loans on good jobs that attract fat monthly salary, meaning that a mortgage loan seeker is still expected to be somebody in a good job or private business with an assured, fat and regular stream of income.
As against the 6 percent interest rate and repayment tenor of between 25 and 30 years, depending on the borrower’s age, mortgage lenders in this country charge between 18 percent and 25 percent interest rate on mortgage loans with a repayment tenor as short as 12-24 months. The tenor also depends on the level of risk associated with either the risk or the borrower or both.
Because of this, the ever-widening housing demand-supply gap can easily be blamed on the commercial interest rate charged on mortgage loans which makes such loans unaffordable to home loan seekers.
“Though the ability of the banks to provide money for mortgage has changed on account of credit challenges in the financial system, mortgage affordability or the fundamentals for lending have not changed”, says Adeniyi Akinlusi, MD/CEO, Trustbond Mortgage Bank.
The mortgage industry does not operate in isolation of the economy. Certainly as an integral part of the economy, it has to be affected by the economic crisis in the country today. In spite of this, mortgage operators insist that the fundamentals for lending have not changed, which means that if somebody has a good job with a financial institution or a multinational company, and the pay package is high enough for him to afford a mortgage, the economic crisis has not changed that affordability.
The past few years have seen quite a number of mortgage products aimed at enabling subscribers own their own homes, but these products are yet to help reduce existing housing gap by increasing housing stock. The reason is simple. The products, like the mortgage loans, are unaffordable by those who need them and, according to late Fortune Ebie, an estate surveyor and valuer, those mortgage products are not the ones that will make any impact on housing.
“The mortgage products that we have today are commercial mortgages which the investor wants to recover his money from. It is just like someone else who has invested in any other venture. He has to recover his money because he borrows from the same place like you”, Ebie noted
Mortgage products can make impact on housing only when there is government intervention and, anywhere else in the world, there is government intervention to make mortgage affordable to everybody, no matter the income level.
Like in other economies, mortgage could be used to move the economy from being import-dependent to a producing and exporting country and Akinlusi says mortgage institutions need long term loans for housing finance and that when there are enough funds to lend to property developers and to home seekers, the entire economy will be stimulated.
By the time there are enough funds in the hands of mortgage institutions for long term loans to property developers, there will be a lot of property construction activities and when these happen, a lot of other activities will be generated and the economy will be better for it.
Engineers, architects, bricklayers, casual labourers and even food vendors will be automatically engaged by a single development in one corner of the city, and it is unimaginable what is possible when there are many of such developments going on at various parts of the country. The long term effect is the development of industries and factories that produce building materials such as cement, rods, roofing materials, wooden materials etc.
Ultimately, this will impact on the wider economy and your guess is as good as mine as to what follows when people have enough capital at their disposal. Definitely, investment is the next line of thought and, depending on the prevailing business environment and government policies, people will invest in many asset classes including real estate which in turn will anything including motor manufacturing
Big Read |