In March, the Monetary Policy Committee (MPC) of the Central Bank Nigeria increased its benchmark-lending rate to 18 percent as a means of containing the inflationary pressure in the country. Since April 2022, the Monetary Policy Rate (MPR) has been rising; the previous rate was 11.50 percent. The rate affects lending and inflation rate and also prices of goods and services. This continuous surge has diverse effects on the mortgage market as it keeps skyrocketing the cost of financing in all various segments of the real estate industry.
CBN Governor, Godwin Emefiele, assured moderation in the committee’s step to curb inflation. This is because it is aware of the negative impacts that rate overtightening could have on the banking sector, the stability of the economy and the financial ecosystem. Mortgage rates are currently ranging between 22 and 27 percent per year, depending on decisions made by CBN. The most recent increase has affected workers in the real estate sector as they battle high cost of building materials, unstable supply chains and decline in number of off-takers.
Challenge of increasing rates discourages potential investors.
Movement in interest rates is a significant drive for the mortgage market, the same way demand is reduced by higher rates for mortgage in industry. Many individuals and businesses experience an increase in rates that largely affect affordability and investments in the market. Nigeria is challenged with low mortgage penetration as below five percent of existing houses are mortgage loans-financed due to lack of titled properties and challenge in registration and transfer of title because it could take as long as six months to two years.
2010 saw the size of the mortgage rates being N284 billion, in 2012 it became N384.1 billion, in 2016 it was N518.76 billion, with its practitioners from FMBN, 5 Mortgage Brokers, 34 Primary Mortgage Banks, 21 Commercial Banks and Nigeria Mortgage Refinancing Corporation (NMRC). Currently, only five percent of the over 13 million housing units in Nigeria are financed by mortgages. These challenges and increasing rates discourage potential investors and homeowners in need of mortgage loans. Consequently, general transactions in the market get affected.
Affordable fund is equal to affordable housing — REDAN President.
During this period of high interest rates, it was discovered that only the National Housing Fund (NHF) under operation by the Federal Mortgage Bank of Nigeria (FMBN) might be the able to provide relief to Nigerians, especially beneficiaries of the fund. FMBN is responsible for the provision of mortgage loans from the NHF available funds at an interest of four percent to qualified PMBs for on-lending and at six percent interest rate to NHF contributors over three decades, secured by the mortgage property.
President of Real Estate Developers Association of Nigeria (REDAN), Dr. Aliyu Wamakko, said the new lending rate for CBN would increase commercial bank interest rates to over 30 percent. He stated that members of the association would be affected by the increase, especially those who have their specialization in developing affordable housing across the country. He added that “without affordable funding, there is no affordable housing.” The incoming federal administration should be aware that affordable housing requires affordable financing, hence, such financing should be created.
There would be a multiplier effect caused by increased rates.
Managing Partner of REFin Homes Limited, Kazeem Owolabi, asserted that the new policy would foster high costs of building in the sector as prior to this increase, operatives have requested a reduced cost of construction. He further stated that following the announcement, commercial banks began to send letters of rate review to people who have borrowed. Resultantly, developers might have no access to finances and those who have access might have their financing too high for builders. He added that there would be a multiplier effect as building materials, negotiation fees and cost per unit of housing will increase, affecting even developers.
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