Deep within the heart of a young man in Ghana lies the wild desire to own a home someday; maybe now, but the forces in his pocket and other economic factors are always battling against this desire. My brother once said that, not everyone will live to own a house.
Finance has been a major constraint to the materialization of people’s dreams to become homeowners. In many advanced countries, mortgage is the most widely-available source of funding for building projects. In Ghana, most people would rather resort to using their personal long-term savings, equity and remittances from relatives abroad to fund the building of their new homes, but not mortgages.
Mortgages are generally classified under 2 categories. They include the residential mortgage and the commercial mortgage. In this article, we would focus more on the residential mortgage. Megarry and Wade have defined mortgage as the conveyance of a legal or equitable interest in property with conditions for its redemption, upon repayment of a loan or the performance of some obligation. In more familiar terms, a mortgage is an agreement that allows you to borrow money from a bank or a similar organization in order to buy a house, or to use one’s house to secure a loan. Fully registered indenture/title documents, building permits and plans are usually accepted as collateral. The well-known mortgaging institutions in Ghana include the GHL Bank (Previously, Ghana Home Loans), Republic Bank (Previously HFC Bank), Fidelity Bank, CAL Bank, GCB Bank and Barclays Bank.
Common mortgage products in Ghana include first time buyer’s mortgage, home improvement mortgage, equity release, home completion and buy to let.
The first time home buyer’s mortgage product is for people who wish to buy their first home.
Equity release is for people who already own a home and wish to use the already-owned home as collateral to secure a loan for business expansion.
The home improvement is secured for maintenance and home renovation purposes.
The buy to let is for people who already have a home and wish to use the home as collateral to build new ones to rent out.
The Home completion product is for people who started their building project with personal funds and get stuck due to inadequate funds and then use the uncompleted structure as collateral to acquire a loan to complete the building project.
Many financial institutions here in Ghana are unwilling to provide mortgages because of its long-term nature. The few available mortgages come at high interest rates or take the form of dollar mortgages, making it difficult for the average Ghanaian to secure. Those who build up the muscles to secure mortgages sometimes end up increasing their repayment plan. They end up doing the repayment for a period that seems to be a lifetime. Mortgages thus, become a lasting obligation for most people even for as long as 15 years. Most mortgaging institutions usually require expensive down payments, making it difficult for the average Ghanaian to afford. The high cost of mortgages is mainly due to high interest rates, huge down payments, low income levels and mortgage underwriting constraints.
A well-structured mortgage market is crucial to the materialization of affordable housing in Ghana and till the right structures are put in place, Ghanaian mortgages still remain unaffordable to people within the middle and low income-earning group.
Write-up specially dedicated to Afia Takyi. Your passion about the mortgage situation in Ghana motivated this!😊