Home buyers in most African countries are left out of mortgages due to a combination of high interest rates and low mortgage terms. A survey by the Centre for Affordable Housing Finance in Africa found that only two countries have a mortgage to GDP ratio of 20 per cent or more as of 2019; South Africa, Cape Verde and Namibia.
Mortgage uptake in many African countries is still negligible with many countries having a mortgage to GDP ratio of less than 1 per cent.
The research found that in countries like Ghana and Guinea, mortgage interest rates in 2019 were higher than 30 per cent per year (35% and 34% respectively) while the mortgage terms for these countries were 15 years and 12 years respectively.
Interest rates and mortgage terms are a key determinant of whether home buyers can access financing. A 35 per cent rate for instance implies that the amount of interest will exceed the principal in three years if left unpaid while short-terms mean borrowers have to pay back higher principle amounts every month. With low-income levels in most African countries, most citizens are naturally edged out of mortgage access.
‘Mortgage rates above 15 percent and offered at tenors below ten years are unhelpful and do little to enhance affordability,’ says the report.
The survey found that eighteen countries had mortgage rates of 10 per cent and below, possibly as a result of government subsidy. Only two countries, Burundi and Benin, had mortgage rates lower than 5 percent. Swaziland (Eswatini) had the longest mortgage term at 30-years where most African countries have mortgage terms between 15 and 20-years.
Proponents of affordable housing initiatives on the continent have argued that offering longer mortgage terms is key to housing affordability as payments are spread out thinly over longer payment periods. The Kenya Mortgage Refinancing Company for instance has sought to enable the financing of buyers at 30-year mortgage rates, up from the current 20-year average.
Even though most mortgage lenders focus on the higher end of the market, lenders in countries like South Africa are beginning to recognize the ‘opportunity of an entry-level market that leverages off the resale potential of government-subsidized housing stock.’