Republic Bank explains how mortgage interest rates can further be reduced
Senior Manager for Commercial & Retail Banking of Republic Bank (Ghana) PLC, Dan Mohenu, has offered some explanations as to why interest rates on mortgage facilities, and for that matter all loans may not go down as significantly as some members of the public expect.
Speaking at a recent Real Estate Conference, Mr. Mohenu noted that, “mortgage loans are usually long term in nature, however Banks tend to finance these loans using short term funds mainly due to reliable flow of such funds. Banks and other financial institutions have invested in innovative solutions to mobilize deposits, however, after these deposits are mobilized, depositors demand high returns on funds placed with financial institutions. Most often, their expected investment rates are benchmarked to the risk-free investment instruments issued by Government”.
According to him, Government is competing with Banks in the same domestic market, borrowing from the market at relatively high rates, for example, 364-day treasury bill is priced at 16.2% p.a., 2-year at 17.25%, 18.3% for the 5-year bond and 20% for the 15-year bond issued in 2019.
“It is therefore practically impossible for Banks to lend lower since Banks will have to price higher in order to compete for the same funds and will end up being crowded out. After factoring in various provisions, rollover risk and making the necessary reserves, it ends up pushing the rates high,” he added.
Specifically, on mortgage rates, Mr. Dan Mohenu offered some recommendations that may lower the cost of mortgage financing. He advocated for long term cheaper funding from Government to financial institutions.
Government could issue “Affordable Housing Bonds” at lower rates with incentives for investors to compensate them for the relatively low returns. He acknowledged the partnership with National Housing and Mortgage Fund (NH&MF), where Government has provided funding to subsidize mortgage interest rates for Public Sector workers.
“Republic Bank is currently offering an interest rate of 11.9% p.a. for mortgages per this arrangement. As a Bank, we have currently exhausted the funds allocated to us, and awaiting new allocation,” he added.
Mr. Mohenu applauded the move by Government to acquire lands for the construction of affordable homes. According to him, this will drive down the cost of houses to enable qualifying individuals to purchase. “Where land is available, Government could go into a partnership with the private sector to develop and sell at lower prices”, he said.
According to the Senior Manager, Republic Bank has also made mortgage loan repayment flexible for mortgagors. “We appreciate the high interest rates and its impact on customers; reason we have introduced two (2) additional mortgage repayment options to allow customers save up to 40% on their mortgage interest cost, by helping them to pay their mortgage even faster and thus reducing their repayment period. This is available to existing and new customers”.
Republic Bank continues to be your Bank of choice for housing finance and we appreciate the trust customers have reposed in us over the past 31 years.
“Affordable housing is possible. However, it must involve partnership and buy-in from all stakeholders and ultimately guided by Government policy. Once each partner knows their role, we will be getting there as a country” Dan Mohenu explained.
Republic Bank (Ghana) PLC, is a subsidiary of Republic Financial Holdings Limited (RFHL) of Trinidad and Tobago. Republic Bank is a leading Universal Banking Institution in Ghana and arguably the most diversified financial institution with services ranging from; Corporate, Commercial and Retail Banking; Investments Banking, Mortgage Banking, Custody Services and Micro Finance.
With a history of Home Finance Company in Ghana, Republic Bank has been very instrumental in the development of the mortgage industry in Ghana and continue to be the number one home loan provider in the country.
The Bank has supported many Ghanaians home and abroad to access loans and own their homes for over 31 years and currently a partner of the National Housing and Mortgage Fund (NH&MF) where the Government of Ghana has provided funding to subsidize mortgage interest rates for Public Sector workers.
Republic Bank recently launched its Blue Portal Campaign: “Step into Success” to afford Ghanaians the opportunity to grow their personal finances, lives and businesses.
