The new National Mortgage and Housing Finance Initiative, piloted successfully by government over the past two years is effectively reducing the applicable interest rates on mortgages in Ghana by over two-thirds. The new scheme is offering mortgages at about 10 percent per annum. Down from the market offered rate of about 28 percent on average.
Added to the dramatically lower cost of the houses available under the scheme – and the fact that home purchasers can live in them right from the start without any deposit with their rent counting as payments against their purchase – the new scheme has the potential to totally transform the home ownership market in Ghana; for the first time, even average earners such as civil servants will now be able to purchase decent two bedroom houses on affordable mortgage terms.
The results of the innovative new financing structure engineered by the Ministry of Finance were outdoored on Monday, October 26, when President Nana Akufo Addo commissioned a 2014 unit housing estate at Tema Community 22. All the housing units are two bedrooms but expandable, built to high construction standards and have external infrastructure such as tarred roads and covered drainage.
Under the new initiative two-bedroom houses will be available for less than GHc200,000 – in some places the purchase cost will be half that price – and rent payable by tenants will also serve as mortgage payments at just 10 percent per annum based on the current interest rate structure in Ghana.
Mortgages are available through GCB Bank, Stanbic Bank and Republic Bank currently but more banks are being expected to sign up as participating institutions. The maximum tenor is 15 years, but efforts are ongoing to have it extended.
The new offer is made possible by an innovative blended financing model through which the half of the cost of a mortgage is met by a participating bank at commercial interest rates – set at three percent above the 91 day treasury bill rate which is currently a little below 14 percent per annum – and the other half is funded by government from tax payers money at just two percent per annum, this being used to meet administrative costs of running the scheme.
At current interest rates this means half the mortgage is funded at about 17 – 18 percent while the other half is funded at two percent creating an effective mortgage rate derived from the simple average of the two components) of 9.5 – 10.0 percent.
Importantly, the availability of mortgage financimng means real estate development companies that join the scheme are guaranteed of immediate sale of their housing units once they are completed, which in turn lowers their construction financing costs, thus enabling them to sell the houses significantly cheaper than similar houses sold on the open market ; often a couple of years after completion and thus priced based on actual construction cost, several years bank interest at over 30 percent per annum, and a profit margin.
Importantly, the new scheme will promote the use of Real Estate Investment Schemes, which are effectively specialized collective investment schemes to finance home construction too.
Unlike traditional mortgages where the home owner has to make a huge deposit before moving in, under the new initiative, the homeowner can move in and begin paying rent which will count as mortgage payments – even the customary two or three years rent advance will not be requisite.
Samson Akligoh, Director of Financial Services Division at the Ministry of Finance, and the main architect of the new initiative’s structure is confident the scheme will be a huge success although he admits there will be implementation challenges as it is rolled out.