FirstBank Launches ₦100 Million Mortgage Scheme at 9.75% Interest Rate
The First Bank of Nigeria Limited (FBN) has launched a new mortgage financing program that aims at providing Nigerians with loans of up to ₦100 million at a single-digit interest rate of 9.75% per annum, which the stakeholders described as a major and significant intervention in Nigeria’s housing finance market in recent years.
The mortgage scheme was launched in collaboration with a federal government-backed housing finance scheme called the Ministry of Finance Incorporated Real Estate Investment Fund (MREIF) to increase access to affordable home ownership and drive investment in the real estate value chain. The program is backed by a housing intervention fund of ₦1 trillion to make financing housing more available and end Nigeria’s nagging housing shortage.
The scheme allows qualified applicants to access a mortgage facility of N100 million with an interest rate of 3%, with a maximum tenure of 20 years. The facility will be offered at a fixed rate of 9.75 percent, which is significantly less than the normal commercial loan rates in Nigeria, which are often between 25 percent and 30 percent per annum.
The scheme is open to a wide category of borrowers, which includes salary earners, entrepreneurs, business owners and Nigerians living abroad who wish to purchase residential property in approved locations. The applicants must make an equity contribution of about 10% of the property value, which is much lower than in conventional mortgage programs, which typically call for a 20-30% equity contribution.
Impact on Nigeria’s Economy
The launch coincides with a significant turning point in Nigeria’s housing industry, which has long been paralyzed by the shortage of housing finance options for individuals. The launch is timely, as the lack of affordable mortgage financing has long been a constraint on the development of residential property and ownership in Nigeria.
The scheme will lower the interest rate on borrowings and offer a longer-term loan (20 years), which will help generate demand for residential housing, especially from the middle-income groups that have historically been denied access to formal mortgage lending markets. Housing finance experts hope the effort will accelerate capital formation in the housing industry and spur private investment in housing projects.
The economic impacts are not limited to housing acquisition. Greater availability of mortgages generally causes growth in construction activity, cement production, steel making, building supplies, architecture, engineering and professional real estate services. As demand for mortgages continues to expand, developers will likely ramp up project pipelines to satisfy expected housing demand, creating job opportunities throughout the housing construction industry.
The program may also be able to stimulate Nigeria’s shallow mortgage market. Even though Nigeria is the biggest economy in Africa, the penetration of the mortgage market is comparatively low with high interest rates, short loan tenures and very stringent qualification criteria. It would be useful if there were longer-term financing available on this rate of interest, as this would help to attract more formal housing finance and decrease reliance on incremental self-funded building.
In addition, the program dovetails with the general policy of the government in resolving housing shortages in Nigeria, which is estimated to be around 20 million housing units. There is a potential to increase availability of affordable mortgage products, increase housing delivery rates, and bring in institutional capital to residential real estate development.
The implications for developers and real estate investors
The message for developers and real estate investors is that same. The mortgage program is a possible demand-side catalyst for property developers.
Many residential neighborhoods have struggled with absorptions in the past because of the lack of long-term financing options among prospective purchasers. As prospective homeowners are now able to avail themselves of loan facilities of as much as ₦100 million, developers could see increased sales velocity in their residential projects that qualify.
The scheme has the potential of benefiting particularly those developers in the affordable and mid-range housing markets, where demand has outstripped supply in the past and where financing has been limited. More mortgage availability can help enhance project viability, accelerate turnover and improve cash flow management of development portfolios.
The project can also be seen as a positive development in the real estate sector, attracting institutional investors and real estate investment funds. Predictability in housing demand through sustained housing mortgage availability can improve the attractiveness of residential developments for long-term capital deployment. Valuation stability and liquidity in key urban centers may bolster as the volume of mortgage-backed transactions grows.
A stronger demand for completed housing units, especially in places that have been approved for the program, can be attributed to an influx of purchasing power to landowners and residential investors. But analysts say supply-side factors such as infrastructure deficits, increased construction costs and regulatory delays will have an impact on housing affordability and economics.
Market Outlook
The FirstBank-MREIF Mortgage program is one of the most organized programs for the cost reduction of financing housing in Nigeria’s recent history. The initiative aims to transform the landscape of mortgage accessibility and broaden participation in the formal housing market with its funding of ₦1 trillion, maximum loan amount of ₦100 million, 20-year repayment period, and an interest rate of 9.75%.
The program is likely to be a major demand stimulus to the residential housing market in the medium term for investors, developers and other stakeholders in real estate. However, its longevity will rely on the ongoing availability of mortgage funding, effective mortgage administration, and developers being able to supply stock that will be affordable to the eligible borrower.
