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Document for Residential Mortgage in Ghana: Nature, Constraints and Implications

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Abstract

The need to have a vibrant and efficient mortgage market in Ghana cannot be overstated as the mortgage market is intricately linked to overall economic development. Advancement in mortgage markets is the secret behind the high standards of living enjoyed by countries such as the Netherlands, USA, Denmark, United Kingdom and the Switzerland. The benefits of the mortgage market are however not being realised in developing countries like Ghana due to numerous constraints from both the demand and supply sides of the mortgage markets. The study examines these constraints from the demand side of the Ghanaian mortgage market by investigating the key variables that determine mortgage demand. This is achieved by examining the mortgage products offered by the three major players in the mortgage market, thus HFC Bank, Ghana Home Loans and Fidelity Bank and analysing same with survey responses obtained by interviewing 120 public and private sectors workers in Kumasi. The study reveals that effective demand for residential mortgage in Ghana is constrained by a myriad of factors including low income levels, informal sources of income, high deposit requirements, extortionate interest rate on mortgages resulting in high repayment to income ratios, high and escalating house prices and some negative cultural perceptions. The study further reveals a clear issue of mortgage unaffordability in Ghana making the use of mortgage credit uneconomical. It is therefore proposed inter alia that measures should be put in place to enhance borrower qualification, reduce interest rates, and cut down cost of construction so as to reduce house prices. A further research aimed at modeling the traditional micro-finance lending into an effective housing finance system is proposed to help address the needs of low income earners who cannot resort to mortgages.

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