In: Root » Legal and finance » Market and Finances
The HFC was licensed under the Financial Institution (non-bank) Law, PNDCL328, 1993, as a mortgage finance company in the country. Originally, the company was conceived to operate as a secondary mortgage institution providing sustained housing finance in a two-tier housing system, where the government was to give it strong central support given the acute housing shortage in the country. The company was to be a catalyst to jump start primary mortgage lending by the banks, with these institutions bearing only 10% default risk with government bearing the remaining 90%. HFC was to bear no default risk (Mahama and Adarkwah, 2006). Few banks, however, offer mortgages in the country and they are mostly to high net worth customers, making the HFC the dominant housing finance institution in the country, providing a wide range of mortgage facilities on a sustained basis (HFC, 2006). Three major reasons account for the lack of interest in the mortgage financing market by the banks. The commission of 1.5% p.a. is not attractive enough, in spite of the fact that they would bear only 10% default risk. Second, high interest rates on treasury instruments, averaging about 28.2% p.a., is a very high rate for them to borrow. Finally, the issues of risk and affordability made the introduction of indexed mortgages unacceptable to both existing and potential mortgagees (Mahama and Adarkwah, 2006). The HFC took on the additional role as a mortgage originator and servicer, introducing conventional mortgages. The company operates several mortgage schemes for Home Purchasing, Uncompleted Housing, Home Improvement, Residential Property Finance and the Non-resident Ghanaians scheme. It also operates the Corporate Loans and the High Net-worth Individual Scheme for corporate bodies. The Home Purchase Scheme is the main mortgage finance facility provided to assist interested individuals and companies in purchasing residential properties for their own use, rental or for other purposes. Maximum repayment periods and interest rates on these loans are 15-20 years and 30.5% for resident Ghanaians and 10 years and 12.5% for non-resident Ghanaians respectively. As a result of high inflation rates, it is impossible for the majority of individuals to access these loans due to the high income-to-payment ratios and the 20% down payments. At the end of 2001, mortgages outstanding stood at 3,639 mortgagees at a value of $44.2 million, an increase of close to 50% over a 9-year period as shown in Table 9.3. Out of the 65% formal sector housing delivery, only 0.8% is through mortgages. The company also provides construction finance to real estate developers who generally produce semi-detached expandable and non-expandable residential houses. These houses are priced in US dollars and their prices range from $17,500 to $36,000. These units provided on the open market are often too expensive for the average Ghanaian: about 70% of the population cannot afford these units. The price of these houses are also set in dollars, thus, with a very volatile economy that sees the cedi depreciating against the country's major foreign currencies, the price of these houses keeps increasing every day in absolute terms. Only those living abroad and foreigners who come in with foreign currencies are able to purchase these houses. This is very unfortunate considering the fact that the housing situation in the country falls short of supply requirements. The private developer is only interested in recouping their investment and making additional profit. Affordable housing is not one of their priorities.
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