Fixing housing crisis via mortgage finance reforms

There’s a yearning for mortgage finance reforms to ensure a robust and functional system that benefits both individuals and the broader economy, as well as plays a critical role in bridging the housing gap and offering many Nigerians the opportunity to live in dignity and comfort, CHINEDUM UWAEGBULAM reports.

There are concerns that the shortfall in financing home ownership will remain a growing burden on many home seekers if the mortgage industry is not strengthened to provide affordable and decent accommodation.

Mortgage finance plays a pivotal role in the development of housing markets. The spill-over effect of strong housing markets can be seen in the form of job creation, especially in the construction sector, improvement in living conditions, potential development of the long-term finance market for infrastructure development, freeing up of government resources to meet other socio-economic needs and, ultimately, in improved economic growth.

That Nigeria grapples with a housing deficit estimated at 28 million housing units is no longer news, even as some experts quote higher estimates. The consequences of this deficit are far-reaching, impacting not only individual households but also the nation’s broader economy and social fabric.

Inadequate housing leads to overcrowding, informal settlements, and the proliferation of slums, exacerbating issues of poverty, inequality and social exclusion. This situation is further exacerbated by the combination of rapid population growth, urbanisation and widening economic disparities leading to a significant shortfall in housing supply.

The implication of this is that only a minuscule population of Nigerians are formal sector employees and could originally access housing finance, leaving a vast majority of those in the informal sector without viable options for homeownership or even affordable rental housing.

Traditionally, the allocation of housing finance has been heavily skewed towards the salaried and formally employed population who fall in the minority of Nigeria’s working population. According to the National Bureau of Statistics’ (NBS) National Labour Force Statistics Report, Nigeria’s informal employment rate, which is the share of employed persons in the informal sector and informal employment, was 92.7 per cent in Q2 2023.

Nigeria’s inflation rate rose for the third straight month in November 2024, soaring to a near 30-year high of 34.6 per cent, up from 33.9 per cent in the prior month. The mortgage rate ranges between 22.04 to 27.5 per cent. FMBN offers housing loans and mortgages at single-digit interest rates, mostly between 6-7 per cent, while also offering a repayment tenor of up to 30 years.

According to NBS, the real estate and construction sector contributed N11.2 trillion in Q1 2024 to the economy, an improvement on the N9.1 trillion which it contributed in the fourth (Q4) quarter of 2023. It contributed 5.17 per cent to real Gross Domestic Product (GDP) in Q2 2024, lower than the 5.29 per cent it recorded in the corresponding quarter of 2023.

However, with all the progress being made by both the government and the organised private sector to provide affordable shelter, the potential of the Nigerian mortgage industry remains largely untapped as it is constrained by several qualitative and quantitative factors.

The United Nations Human Settlements Programme (UNHabitat) highlights the critical role of housing in achieving sustainable development goals, emphasising its links to health, education, employment, and environmental sustainability. In Nigeria, the lack of access to adequate housing undermines progress towards these goals, perpetuating cycles of poverty and marginalisation.

One of the key institutions poised to play a pivotal role in addressing Nigeria’s housing crisis is the Federal Mortgage Bank of Nigeria (FMBN). Established with a mandate to promote the delivery of affordable housing finance to Nigerians, the FMBN has the potential to catalyse investments in the housing sector, facilitate access to mortgage financing, and support the development of affordable housing projects across the country.

Despite this huge potential, the Nigerian mortgage banking industry remains relatively underdeveloped and has failed to contribute significantly to closing the country’s housing deficit. One of the main reasons for this position is that the industry lacks the financial capacity to meet the prevailing mortgage requirements. The Nigerian mortgage banking industry has a potentially great developmental impact, both in terms of providing affordable housing and promoting economic development.

In response to this urgent need for a more inclusive and equitable housing finance system, the FMBN recently introduced a series of innovative loan products, in addition to its existing rich bouquet of products, which include the National Housing Fund (NHF) Scheme, the Individual Construction Loan, the Rent-to-Own Scheme, the Cooperative Housing Development Loan, and Diaspora Mortgage Loan. Among the new offerings is the Rental Assistance Loan (RAL), a groundbreaking initiative aimed at providing financial relief to individuals and families struggling with high costs of rent.

However, to maximise its impact, the FMBN requires adequate funding, enhanced operational efficiency, and greater transparency in its operations. Stakeholders have been calling for the repositioning of the bank by recapitalising it from N2.5 billion to N500 billion to meet the housing needs across Nigeria.

Experts want urgent reforms to make homeownership more accessible to Nigerians. These reforms include easing access to mortgage financing, lowering interest rates, increasing loan tenures, and strengthening the legal and regulatory framework. Infrastructure and affordable housing initiatives are also vital in creating a sustainable and inclusive mortgage system.

President of the Real Estate Developers Association of Nigeria (REDAN), Akintoye Adeoye, who lauded the Economic and Financial Crimes Commission (EFCC) for the record-breaking recovery of 753 duplexes and other properties in Abuja, recommended that the Federal Government sell the recovered estate in its current state and channel the proceeds towards recapitalising the FMBN.

“This strategic move will empower the FMBN better to serve Nigerians in their quest for affordable housing, addressing the nation’s significant housing deficit. Additionally, the recapitalisation of the FMBN and the injection of more funds into the NHF scheme is necessary to enable the provision of more NHF loans at single-digit interest rates will offer more affordable mortgage options for potential homeowners,” he said.

REDAN sought collaboration with financial institutions to introduce single-digit interest mortgage rates, and expansion of the NHF contributions to benefit more Nigerians and make housing finance more accessible.

The Association of Housing Corporations of Nigeria (AHCN) has also been at the forefront of demanding the recapitalisation of FMBN by N5 billion. This was reiterated by its president, Eno Obongha, who said, the funds available to FMBN are inadequate because so many people who would have contributed are not captured and are not paying. Some deductions are made and are not remitted to FMBN, and the law of FMBN is obsolete.”

The Federal Government has also assured of its commitment towards the N500 billion recapitalisation of the apex mortgage firm and facilitation of necessary legislative amendments of relevant housing industry laws including the National Housing Fund (NHF) Act, 1992, FMBN Establishment Act, 1993. The Minister of Housing and Urban Development, Ahmed Dangiwa, who made the commitment promised to ensure that FMBN gets all the necessary support at the highest levels possible to deliver maximally and optimally on its mandate to Nigerians.

He urged FMBN to make a greater effort towards reducing its non-performing loan portfolio and clearance of the backlog of its audited accounts, saying, a major step in this regard is to ensure efficient processing and approval of corresponding NHF loans for all completed projects, as well as to ensure effective off-take and inter-account settlement to clean up the bank’s books.

This enormous challenge was acknowledged by FMBN Managing Director, Shehu Osidi, who announced plans to make the FMBN more impactful and responsive to the housing needs of Nigerians, as well as transform the bank to optimally deliver on its mandate of mortgage provision for affordable housing solutions.

He said the bank has initiated and pursued crucial reforms to strengthen its capacity to perform, optimise its processes, enhance customer service delivery, and increase its impact on Nigerians. According to him, Nigeria’s informal sector, which includes traders, artisans and small business owners, constitutes a large portion of the economy; however, due to the unpredictable nature of their incomes, these individuals often face significant challenges in accessing formal credit facilities.

“By tailoring the rental assistance loan to meet the specific needs of informal sector workers, FMBN is promoting financial inclusion and also empowering a critical segment of the population. This move is strategic because FMBN acknowledges the significant role the informal sector plays in the Nigerian economy. By providing them with access to affordable housing finance, the bank is helping to uplift a large and often overlooked segment of the population, contributing to broader economic growth and social stability.

“The introduction of the RAL is part of a broader strategy by FMBN to address the housing affordability crisis in Nigeria. By offering micro-housing loans, the bank is providing a practical solution to the immediate needs of medium and low-income earners, many of whom struggle to save for homeownership due to the high costs of rent,” he said.

Osidi explained that the initiative is expected to have a ripple effect across the housing sector, by reducing the financial burden on renters, thereby enabling individuals to allocate more of their income towards savings or other essential expenses. Over time, this would lead to an increase in homeownership rates, as more Nigerians can accumulate the necessary capital for a down payment on a home.

“Moreover, the rental assistance loan aligns with FMBN’s broader mission of promoting financial inclusion and sustainable housing development. By offering accessible and affordable housing finance solutions, the Bank is playing a pivotal role in driving economic growth, reducing poverty, and improving the overall quality of life of Nigerians.

“The ripple effects of this will be felt throughout the Nigerian economy. As more individuals secure affordable rental housing, the pressure on urban housing markets is expected to ease, leading to more stable and sustainable housing prices. This, in turn, could make homeownership more attainable for a larger segment of the population, further contributing to the nation’s economic and social development.”