A housing loan in Nigeria is usually referred to as Mortgage and is defined as a loan that is given by a financial institution for purpose of purchasing real estate. This loan is usually for a residential property that is used as collateral to secure the loan.
Housing loans usually attract a lower interest rate because the loan is secured against default on the property. The central bank of Nigeria states that lenders reported an increase in the availability of secured credit to households in Q4 2020 relative to the previous quarter. This implies there will be more housing loans available to Nigerians in 2021 with interest rates coming down closer to the MPR .
The CBN attribute the increase in availability of housing loans to changing economic outlook and increased market share objectives by lenders such as GTB, Zenith and Access bank.
Although proportion of housing loan in Nigeria applications approved in Q4 2020 decreased, as lenders tightened their credit scoring criteria, the increase in applications by Nigerians who wish to own their homes means the absolute number of house loans is increasing in Nigeria.
According to the central bank of Nigeria “Maximum Loan to Value (LTV) ratios remain unchanged in Q4 2020 and is expected to remain same in Q1 2021. Lenders were not willing to lend at low LTV ratios (75% or less) in Q4 2020 and Q1 2021. However, lenders were willing to lend at high LTV (more than 75%) in Q4 2020 and are willing to lend at high LTV (more than 75%) in Q1 2021. The average credit quality on new secured lending improved in Q4 2020 and is expected to improve in Q1 2021.”
Due to the COVID 19 trigged economic growth decline, housing loan performance, measured by default rates, worsened in Q4 2020 and is expected to remain unchanged in Q1 2021. Bank lenders reported low loss given default by households in Q4 2020, and they also expect lower losses in Q1 2021 because of increased demand for housing in Nigeria due to rapid population growth.
Affordability continues to be a major limiting factor to home ownership for most working class Nigerians. The corona pandemic and subsequent lockdown significantly affected the supply of housing as the construction sector was not considered an essential one during the lockdown.
In response to the COVID 19 inspired downturn, The Central Bank of Nigeria (CBN) approved the sum of N200 billion as a mortgage finance facility to the Family Homes Fund Limited (FHFL) and targeted at low income earners at an interest rate of 5% to 9% per annum.
According to the central bank of Nigeria ‘’The programme will house up to 900,000 children and adults (at an average of 3 persons/home) on a low income with direct impact on health, education and economic outcomes. Most of these would currently live in informal settlements with shared facilities in unsanitary environments. Towards targeting people on low-income level across the country.’’
The scheme requires workers to organise themselves into structured cooperative collective, that are then expected to join the National Housing Fund (NHF) scheme and make monthly contributions of 2.5 per cent of their salaries. The FMBN will package NHF mortgage loans of up to N15m to the members of the cooperatives at 9% interest rate annually for up to 30 years. The ultimate aim is to provide low cost affordable housing for local citizens.
There are many opportunities for growth in Nigeria’s affordable housing sector but these opportunities need access to affordable housing loans for the potential to be fulfilled.