transformative potential of a robust mortgage system in enhancing homeownership in Nigeria. This article dives into the historical context, highlights the challenges of the current mortgage system, and proposes innovative strategies to overcome these hurdles, fostering more accessible and affordable homeownership for Nigerians
Mortgages are a crucial tool for individuals, particularly for those in lower-income brackets, aiming to become property owners when their financial resources might otherwise limit them.
They enable individuals and families to achieve home ownership, a goal often considered a fundamental aspect of life in many cultures.
In addition, mortgages can serve as a wealth-building tool and a means of securing financial stability. However, the system must be working efficiently for these benefits to be realized, and this article aims to discuss how a mortgage system can enhance homeownership in Nigeria.
The Importance of Mortgages
Mortgages present opportunities for people to leverage borrowed funds for property investment.
As the property appreciates in value over time, this leads to equity accumulation and a potentially lucrative long-term investment.
Apart from being a source of capital, mortgages also allow individuals to establish a credit history, which can improve their future financial prospects.
The Nigerian Context
Nigeria’s mortgage system, historically, has been considered underdeveloped.
Various economic and market challenges, including limited access to finance, high-interest rates, stringent lending criteria, and the necessity for substantial down payments, have all created obstacles for potential homeowners.
To address this, the Federal Government of Nigeria formed the Federal Mortgage Bank of Nigeria (FMBN) in 1994, aimed at facilitating affordable residential housing for Nigerians.
Importance to the Government
While meeting social needs is a key objective, the provision of mortgage facilities for housing development also has significant benefits for the government.
Revenue generated from fees, interest payments, and other related streams can be utilized to support other programs or services, contributing to the government’s overall revenue.
Improvements in the mortgage system can be achieved through a dual-pronged approach: improving the regulatory framework and enhancing mortgage accessibility and affordability.
Legal and Regulatory Framework
Nigeria needs to strengthen its legal and regulatory framework for mortgages to promote a more vibrant system.
The Land Use Act of 1978, for instance, was meant to consolidate the various land ownership systems in the country, but it has resulted in various process-related lapses.
Better defined property rights, faster land registration, and clear foreclosure procedures would provide security for lenders and borrowers, potentially increasing mortgage lending.
Accessibility and Affordability
Despite the establishment of the Federal Mortgage Bank, its impact has been less than stellar.
The high cost of borrowing, fueled by interest rates ranging from 14% to 17.5%, has been a major factor contributing to low mortgage penetration in Nigeria.
Strategies for Improvement
Improving accessibility and affordability can be achieved through measures such as government-backed mortgage guarantee schemes.
These schemes reduce lender risk, encouraging them to offer mortgage loans to a wider range of borrowers.
Lower mortgage costs will make them more attractive, leading to higher rates of adoption and penetration.
The significance of an effective mortgage system, with its potential to boost homeownership, especially in developing nations like Nigeria, is paramount.
By addressing the challenges within the system, the Nigerian government can not only improve living standards for its citizens but also secure additional streams of revenue.
As we continue to examine ways to improve the mortgage system, we must bear these considerations in mind.