NMRC’s N10b bond offers new vista for mortgage financing

Better days seem ahead for housing finance in the country, following the listing of the Nigerian Mortgage Refinance Company Plc. (NMRC) N10 billion fixed rate bond on the FMDQ Exchange’s platform.

The 7.20per cent series three listing, which was under its N440 billion bond issuance programme is expected to increase liquidity in the mortgage sector and enhance access to affordable housing finance in Nigeria.

The net proceeds of the exercise will be used to refinance eligible mortgage loans originated by the participating mortgage lending banks and follows its 2018 N11 billion 13.80per cent series 2 bond and it’s very first N8bn 14.9per cent series 1 bond issued in 2015.

However, operators said the impact on homeownership would depend largely on the rate at which the bond is raised.

According to them, if it is raised in a single digit, it is possible that the refinancing can be in single-digit but if the rate is above single-digit then by the time they add their margins and mortgage banks add theirs that would put the rates in the neighbourhood of 15-16 per cent because each financier would put its own markup.

At present, the high mortgage interest on the nation’s housing delivery has continued to be a source of worry for operators.

Experts have insisted that housing finance is central to the nation’s economic development.

Currently, Nigeria’s mortgage banks charge between 19 and 24 per cent. And this could go higher, depending on the risk volume, which has affected the real estate’s potential as a goldmine for investors.

However, operators said the NMRC bond could spike a brighter outlook for the checkered history of the sector, which has impacted negatively on homeownership in the country.

Already, The Guardian learnt the bond issue coordinated by DLM Capital Group, was oversubscribed by a record 328 per cent.

Managing Director of NMRC, Mr. Kehinde Ogundimu, said, the proceeds of the issue would be used to refinance existing and conforming mortgage loans, adding that the issuance also demonstrates NMRC’s commitment to the provision of affordable liquidity to the mortgage market by attracting long-term funding into the housing finance industry from the capital markets.

Ogundimu noted that the bond would result in a substantial decrease in the mortgage interest rate and translate to some cost reduction for the real estate developers who usually borrow short term at a high cost to fund long-term projects.

Branch Manager, TrustBond Mortgage Bank, Olusola Femi-Olukotun said the outlook is looking brighter because when the cost of funding is less, the mortgage is lower but when you have a high cost of funding there is nothing commercial or mortgage banks could do.

She stressed that it will pump more liquidity into the system and it is going to affect everybody whether in the mortgage or commercial banks because all are opened to refinancing loans for all the banks.

Depending at the rate at which the bond was raised, the implication is that there is an opportunity for whosever that wants to buy a house in the secondary market that can accommodate the initial mortgage that has been refinanced by the bank,

In terms of liquidity, she said banks know that with the N10 billion bond, which is with NMRC, they can give mortgages in line with underwriting standard.

She said: ”So people can have access to mortgage financing at an affordable rate. Generally, the interest rate is the function of the cost of that fund that is funding the mortgages.

“So, if NMRC has gone to the market, to raise the bond for N10 billion, maybe at the rate of 10.5 per cent, they can give that money to banks at 12.5per cent.

“Let’s say the banks add 3 per cent, that is 15.5 per cent, that means that you can get mortgages at 15.5 per cent, which is still better than 20 percent that commercial banks are giving right now.”

Consenting, the Managing Director and Chief Executive Officer of Abbey Mortgage Bank Plc, Madu Hamman, said usually when NMRC goes to raise bonds, it is to provide liquidity to refinance mortgages for the mortgage and other banks that applied for refinancing.

According to him, it is their way of raising money from the money market or capital market to refinance mortgages.

He stressed that it provides liquidity for the mortgage banks to continue to give mortgage finances to other Nigerians because mortgage banks use funds at their disposals to create these mortgages but once they are created and given out, it means that their liquidity has come down.

It means they need to refinance these mortgages to provide additional liquidity to give more mortgages.

Hamman, however, said bringing the mortgage rate to a single digit, will depend on the rate at which they are raising the bond.

“ If it is in a single digit, it is possible that the refinancing can be in single-digit but if the rate of the bond they are raising is above single digit, by the time, they add their margin and mortgage banks add their margins it will put the rates in the neighbourhood of 16-17 per cent because each financier would put its own markup.

“You have to make a profit from your transactions, so, if you give me N1 million at 9 per cent. I can’t lend it out at 9 per cent because I have to cover my cost of risk and cost of operation so; I put a little mark upon it to also lend that money out.

“So, if it is in single-digit that the bond rate is, then, it is possible to give mortgage loans on a single digit as long as it is in the neighbourhood of 9-10 per cent by the time they put on their mark up and things like that, it will go about 13-14 per cent.

“Definitely, it would improve liquidity in the sector for them to be able to give more mortgages,” he added.