High interest rates curbing mortgage growth

By Bernard Yaw ASHIADEY

High interest rates and the lack of affordable housing to purchase are two main factors curbing the growth of mortgages in Ghana, Asare Akuffo, Managing Director of HFC Bank, has said.

The most crucial challenge, however, is the high interest rates since the problem of inadequate affordable housing can be solved if the rates come down to between 10 and 15 percent, he said.
“I think it is the high interest rates that are most crucial, because if really there is demand and people can afford the houses, we will get developers that will deliver them.”

He said there is a need to produce large units of housing or create townships of about 1,000 or more units before house prices can be brought to around GH¢50,000 and below for most Ghanaians.
“This can be done because other countries like Mexico and Malaysia have been able to solve the problem. All that is needed is for interest rates to come down,” Mr. Akuffo said.

“If interest rates remain above 20 percent, then it becomes a major challenge. We currently have a dollar mortgage portfolio that is growing because we can borrow the dollar at seven percent and then lend at 10 to 11 percent, showing our commitment to the mortgage business.

“But we do not want to do only dollar loans but cedi loans as well, so that Ghanaians can borrow up to GH¢30,000 to buy homes.”

The Government of Ghana (GOG) in its 2007 budget mandated HFC Bank to provide an affordable home-ownership scheme for public sector employees. The scheme -- HFC Public Sector Home Scheme -- has its interest rate capped at 15 percent and the volume of loans has been growing very slowly.

There have been only 325 beneficiaries since the start of the scheme to the end of last year, and the portfolio outstanding stood at GH¢8.8million. Ghana’s public sector is reckoned to have about half-a-million workers, most of whom rent their housing.

Databank Research has said interest rates are likely to remain high in the short-term due to the expected huge deficit-financing needs of Government this year.

The investment bank said it expects that money market yields will remain above 15 percent throughout the year, and probably be above 20 percent in the second quarter.

Databank lead analyst Sampson Akligoh said shifting the attention of investors to medium-term notes is critical to lowering interest rates for Ghana, and will be less harmful for the economy in the short-term.

“Government is really crowding out the private sector with the high Treasury bill rate, so Government should manage its fiscal challenges, reduce expenditure and also put in place measures to collect revenue due it,” said Mr. Akuffo.

“If Government is able to collect its duties and taxes -- and expenditure is controlled, then everything will be right. So it is in the hands of Government.”

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