Banks speak on mortgage gaps

Bankers Association of Malawi (BAM) has justified why almost half of Malawian banks shy away from mortgage financing, saying different banks offer different services to their niche.

BAM chief executive officer Lyness Nkungula’s reaction follows revelations from the Center for Affordable Housing Finance in Africa (Cahf) that only four of Malawi’s nine commercial banks provide mortgages, which are offered based on client’s income at an average interest cost of 19.5 percent.

This is, however, despite the economy having the demand for housing at 21 000 units annually with only 10 percent of the houses being built.

In a written response to Business News on Wednesday, Nkungula observed that not all banks offer mortgages as their service portfolio.

She said: “Banks offer services to different markets. You may be aware that NBS Bank plc emerged from New Building Socety whose sole core business at that time was to offer housing mortgage.  Likewise, FDH Bank plc and CDH Investment Bank came out of discount houses whose purpose was the provision of discounting financial instruments.

“Therefore, not all banks offer mortgages as their service portfolio. They usually focus on their market niche.”

Cahf figures indicate that our counterparts Zambia, Tanzania and Mozambique have 10 banks, 34 banks and 19 banks, respectively.

Their mortgage interest rates averages 24.5 percent, 17 percent and 16.23 percent for Zambia, Tanzania and Mozambique, respectively.

On Malawi, about 70 percent of the urban population live in slums, located in the outskirts of major cities with average rentals of approximately K75 000 and a minimum wage of K35 000 while a decent house costs an average price of K10 million to own.

The financial sector’s mortgage policy for the country demands that in mortgage approval, the applicant’s monthly repayment should not exceed 35 percent of his/her monthly salary.

With the current average mortgage rate of 19.5 percent this means the client is expected to repay about K232 166 ($315) a month from a minimum income of K663 333 ($900) for a K12 million ($16 284) mortgage while the average salary for most mortgage applicants is about K400 000 ($543).

On the other hand, the minimum mortgage offered by the commercial banks range between K12 million ($16 284) and K16 million ($21 712).

Meanwhile, the urban population is on the rise.

According to Ministry of Local Government, the population of the country’s major cities was 3 304 531 in June 2019 and it is projected to reach 4 254 811 by 2023.

This means that the population of major cities will have increased by 18.3 percent by 2025.

Consumer rights activist John Kapito observed that the housing market cannot be left to market forces to determine when incomes and wages are regulated by government.

In a separate interview, Land Economy Board registrar Mickson Chiundira observed that access to land and limited financial access has made it even worse for low income earners to own or afford decent housing. n