Why Nigerian Banks Charge 30% For Mortgage Loans

The Central Bank of Nigeria on Wednesday released its monthly deposit and lending rate report showing how much banks interest banked charged for borrowing and how much they paid for deposits.

As has been the case for years, the margin between deposit and lending rates was over 25% on the average an indication that the CBN’s plan to narrow the disparity is not working.

What however caught our attention was the lending rates banks charged for mortgage related loans. According to the data, Commercial Banks charged between 13% and 29% for prime lending rates while maximum lending rates ranged between 19.9% and 30%. Only Sun Trust Bank charged 6% for both prime and maximum lending rates.

The data showed Skye Bank charged the most rates for Mortgage at about 31%. First Bank, Unity Bank and Keystone Bank all charged 30% respectively for mortgage loans. For the other Tier 1 Banks, Access Bank, GT Bank, UBA and Zenith Bank charged 25%, 24%, 29% and 28% respectively as maximum lending rates for Mortgage loans.

Nigeria claims to have a housing deficit of over 17 million units and expects the mortgage market to help fill some of these gaps. However, with lending rates this high it is nearly impossible to fill this gap.

A lot of Nigerians looking to purchase homes will feel discouraged by these rates especially at it makes real estate investing unprofitable. With rental income averaging about 5% of value in Nigeria, it is hard to see anyone interested in real estate as a business breaking even. Nevertheless, some have developed ingenious means of reducing the high interest rates by building homes that they can live in and rent.

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