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Despite huge housing deficit,banks in Ghana are fleeing the mortgage market. Here is why!
When it comes to residential mortgages, big banks in Ghana are waving the white flag.
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The annual housing demand of about 100 000 units is not being met, as about only 40 000 housing units currently being delivered per annum.
It is worth stating that, government has over the years made some provisions to reduce the housing in the country.
Players include the Social Security and National Insurance Trust (SSNIT) and the State Housing Company (SHC).
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However, these developments, driven by the state institutions have not been able to make any significant dent in the demand, as state housing institutions produced less than 40,000 units in a 10-year period 1991 to 2000, that is according to data from the Ministry of Works and Housing.
Apparently, the state’s effort alone has not been significant in addressing the deficit which has therefore called for private individual involvement in the housing delivery.
Banks have over the years rolled out mortgage loans to individuals as a measure to meet the country’s huge housing needs.
A mortgage loan is a loan obtained to finance the purchase of real estate, usually with specified payment periods and interest rates.
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Ghana’s quest to reduce the almost two million housing deficit may take a long time as the past few years have been tough for banks’ mortgage businesses.
Economic Imbalance
The general slowdown in economic activities has forced some big banks in Ghana to give up on mortgage loans.
They argue the development has also increased the cost of mortgages making it unattractive to prospective home buyers.
Over the period big banks like Access Bank, First Atlantic Bank, Capital bank, Fidelity bank, First National Bank, GT Bank, NIB, GN Bank, Stanchart and UBA have stopped offering mortgage loans.
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For many analysts, that step is only expected.
Professor Kwabena Anaman of the Institute Of Statistical, Social and Economic Research says:
“The fact is that the cost of capital and compliance have convinced many bankers that giving home loans to Ghanaian families is not worth the risk.”
Rising Non Performing Loans (NPL)
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A non-performing loan is a debt which the borrower is late in relation to making payments or is in danger of missing payments.
Banks make profits out of interest payments among others. Therefore, high non-performing loan reduces banks’ profits and their ability to further lend to borrowers. This ultimately has a negative effect on the economy.
Rising NPLs on banks' shelves make them give up on products like mortgage loans
Demand for mortgages has also decreased due to high interest rates
According to the latest average interest and annual percentage report released by the Bank of Ghana, interest rates on home loans increased marginally from 30.6 to 31.5 percent.
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Unibank comes first as the bank with the highest mortgage rate of 45.1 percent. The Royal bank follows with a mortgage interest of 40.5 percent,
Ecobank offers the lowest rate of 29.3 percent.
Banks offering high interests on mortgage loans say they cannot be faulted for the high interest on loans
Speaking to Business Insider SSA, managing Director of HFC Bank Ghana, Robert Le Hunte said the government must slash taxes slapped on them to be able to offer cheaper mortgage loans to their customers.
He argues that the continuous imposition of taxes on interests earned on mortgages, make it difficult for them to reduce interests for the average Ghanaian to access mortgage services
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Some investment analysts in Ghana are of the view that the current interest rates on mortgages are clearly a disincentive for customers to access credit.
This situation they believe is likely to impact hugely on the country’s ability to solve its 1.7 million housing deficit gap which is also anticipated to increase to about 1.9 million by 2019.
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