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Mortgage is still new
 
Posted on: 06-Aug-2012         Source: thebftonline.com
 
 
 
Many Ghanaians do not understand how mortgages operate in the country, even as the nation grapples with serious housing challenges, a recent survey has revealed.


Clifton Homes, a property developer, conducted in association with the Business and Financial Times a survey of nearly 1,000 local residents at the Accra Mall.


The market research, conducted for the second year in succession, was designed to track trends in the Capital’s residential real-estate sector.


Over 80% of people admit to having no understanding of how mortgages operate. The research revealed that even among the 20% of people who do claim to understand mortgage products, many have misconceptions about lending terms and conditions.


The housing deficit in Ghana now stands well over one million houses. To address this deficit and accommodate new households, there is need for an annual delivery of about 150,000 units for the next 20 years. The current annual supply is however between 30,000 and 40,000.


George Moffet, Managing Director of Clifton Homes said: “For understandable reasons, mortgage providers have strict eligibility criteria and not every application will be accepted.


“However, it’s a shame if a lack of accurate information deters potential buyers from even researching the various financing options available to them.


“As for the issue of cost, the public are correct to view lending rates as expensive compared to other international markets, but hopefully increased competition in the sector and rising demand will cause more attractive rates to be offered soon,” he explained.


The survey reveals that home ownership continues to be low by international standards, with only a third of adults claiming to own their own home.


The remainder either opt to rent (45%) or live in the home of family-member (20%). It is no surprise, then, that ambition for future home ownership is strong; over 70% of people surveyed intend to purchase land or a home in the next 3 years.


However, in reality, the main barrier for potential buyers is being able to finance such a purchase. Out of 1,000 survey participants only 6% had actually purchased a home in the past 3 years, with a further 11% investing in land.


Of these buyers, only one in 10 used a mortgage to finance their property transaction, with the vast majority paying with cash savings -- an option which is simply not available for most would-be owners.


Such an environment should generate a strong interest in mortgage financing options, but it seems that the public remains cautious.


Only a third of the respondents would even bother investigating mortgage options at all should they decide to make a property investment.


The survey included interviews with many homeowners who had investigated mortgage financing as an alternative to paying cash, but then rejected it as an unviable option.


By far the most common reason stated for this decision was that “mortgages are too expensive”.
This should be of particular concern to the industry, given that many people significantly underestimate the actual costs incurred by mortgage buyers.


Over 40% of potential buyers estimated the average interest rate charged for a US$ mortgage to be less than 10% per year (whilst a quarter of people expected a rate under 5%). In reality, standard rates on the market are significantly higher -- in the range of 12-15%.


Survey participants also underestimated the initial down-payment that must be paid by the buyer. On average, people estimated that less than 20% of the property purchase price must be paid in advance as a cash down-payment, when in reality the standard minimum is 25%, or higher for larger loan values.


It also seems that many prospective buyers underestimate the size of mortgage loan they could potentially secure.


Most mortgage providers will offer loans of 3 to 4 times an applicant’s salary to fund a property purchase, but on average members of the public did not expect to be offered any more than double their annual salary.


By Theophilus YARTEY