Current economic conditions are bad for the mortgage market, Gilbert Hie, Managing Director of SocieteGenerale Ghana, has said.

High inflation and interest rates, the falling cedi and quoting mortgages in dollars are disincentives for growth of a market that has so much potential to solve the country’s housing deficit, he told the B&FT.

The average interest rate on a local currency mortgage has risen to close to 30 percent per annum, because lenders index their rates to the government’s Treasury bill rate -- currently at 24 percent. The high interest rate has been deterring potential borrowers.

Hitherto, any borrower with qualifying income could access a dollar mortgage, which often has a lower interest rate; but this has now been restricted to people who earn their income in dollars, a situation that has led to many people being priced out of the market.

Mr. Hie backed the new restriction by the central bank, saying it is “very dangerous” for an individual to take out a mortgage in foreign currency; especially when the local currency is not stable and has lost a quarter of its value in barely six months.

“Mortgage loans should not be in foreign currency. For example, instead of borrowing US$100,000 and paying GH¢400,000, you could be repaying GH¢1million if the cedi continues to depreciate. It could ruin your family and yourself,” he said.

There are other fundamental setbacks in the mortgage market, he stated, such as confused land registration and property ownership.

“To have a good mortgage market in this country, we should first re-organise the cadastre and re-organise all the registration systems to have a clear view of who is the owner [of property] to provide the banks with credible information.”

The Managing Director added that cheap mortgages require low interest rates, and that many people will find themselves overburdened if they borrow at current high rates.

“The necessary pre-conditions are re-organisation of land registration, positive macroeconomic factors, lower interest rates, and inflation in single digits. To take out a mortgage with rates of over 25 percent is expensive, because in 10 years you will pay over three times the price. All these will also not be possible if GDP gross rates are not 6 percent and above.”

Ernest Hanson, Director at Beaufort Properties, a real-estate development company, agreed that current economic challenges have slowed down the housing market.

“Demand had been falling before the BoG directive (outlawing dollar borrowing), but what the new policies have done is to escalate the slowdown in demand. For us, the dollar issue has hit our buyers really hard. In the next 12 months there isn’t going to be much supply on the market because people can’t finish projects on time.”