Failures and Lessons in Unsustainable Mortgage Practices in Ghana

Unsustainable mortgage practices can lead to financial instability, exacerbate housing deficits, and create long-term economic challenges. In Ghana, while efforts have been made to develop a stable mortgage market, there have been notable failures that underscore the need for reform and strategic planning. Examining these failures provides critical lessons for stakeholders, enabling them to design policies and practices that ensure sustainability.

1. Key Failures in Unsustainable Mortgage Practices

A. High Interest Rates

• Ghana’s mortgage market is characterized by high interest rates, often ranging between 20% and 30%, making mortgages unaffordable for many households.
• High borrowing costs have discouraged middle- and low-income earners from accessing housing finance, limiting the market's growth.

B. Limited Accessibility

• Traditional mortgage products are often inaccessible to individuals in the informal sector, which constitutes about 85% of Ghana’s workforce.
• Stringent qualification criteria, such as the requirement for formal employment and high down payments, exclude a significant portion of the population.

C. Currency Risks

• Many mortgage products in Ghana are denominated in foreign currencies, exposing borrowers to exchange rate fluctuations.
• Depreciation of the Ghanaian cedi increases repayment burdens for borrowers, leading to higher default rates.

D. Poor Financial Literacy

• Limited understanding of mortgage products and repayment obligations has resulted in poor decision-making among borrowers.
• Borrowers often fail to account for long-term affordability, leading to financial stress and eventual defaults.

E. Weak Regulatory Oversight

• Inadequate enforcement of regulations has allowed predatory lending practices and high fees, further discouraging mortgage uptake.
• A lack of transparency in loan terms and conditions has undermined trust in the mortgage sector.

F. Environmental Neglect

• Traditional mortgage practices have failed to incorporate environmental considerations, leading to housing developments that are energy-inefficient and unsustainable.
• The absence of green mortgages has contributed to long-term environmental degradation.

G. Housing Mismatch

• Mortgage financing has often targeted high-income earners, resulting in a surplus of luxury housing while failing to address the needs of low- and middle-income groups.
• This mismatch has left many units unsold, contributing to inefficiencies in the housing market.

2. Case Studies of Mortgage Failures in Ghana

A. Unaffordable Mortgage Schemes

• Certain mortgage schemes launched by private developers failed due to unrealistic pricing and high interest rates.
• Example: Luxury housing projects in Accra remain unoccupied because they are out of reach for the average Ghanaian.

B. Currency-Denominated Loans

• Some borrowers who took foreign-currency-denominated mortgages experienced repayment difficulties due to cedi depreciation.
• Example: In 2014, borrowers with dollar-denominated mortgages faced repayment increases of up to 50% due to rapid currency devaluation.

C. Failed Public Housing Initiatives

• Government-backed mortgage schemes targeting affordable housing failed due to poor implementation, corruption, and lack of funding.
• Example: The Saglemi Housing Project, intended to provide over 5,000 affordable homes, stalled due to mismanagement and legal challenges.

3. Lessons Learned from Unsustainable Practices

A. Importance of Affordability

• Lesson: Mortgages must be designed to align with the income levels of the target population. Subsidies, lower interest rates, and flexible repayment terms can enhance affordability.
• Action: Financial institutions should introduce tiered mortgage products tailored to different income groups.

B. Addressing Currency Risks

• Lesson: Local currency-denominated mortgages reduce exposure to exchange rate fluctuations and make repayments more predictable.
• Action: Stakeholders should prioritize loans in Ghanaian cedis and seek partnerships to stabilize interest rates.

C. Promoting Financial Literacy

• Lesson: Borrowers need education on mortgage terms, budgeting, and long-term affordability to make informed decisions.
• Action: Financial institutions and regulators should implement nationwide financial literacy campaigns.

D. Enhancing Regulatory Oversight

• Lesson: Robust regulatory frameworks can curb predatory lending and improve transparency.
• Action: Regulators must enforce compliance, ensure fair lending practices, and protect borrower rights.

E. Incorporating Environmental Sustainability

• Lesson: Green mortgages can promote energy efficiency and reduce long-term costs for homeowners.
• Action: Policies and incentives should encourage the adoption of eco-friendly housing developments.

F. Public-Private Partnerships

• Lesson: Collaboration between the government and private sector can expand access to affordable housing.
• Action: Governments should provide subsidies or guarantees, while private developers focus on cost-efficient housing solutions.

G. Prioritizing Low- and Middle-Income Groups

• Lesson: Targeting underserved populations can help address the housing deficit and create a balanced market.
• Action: Financial products should prioritize inclusivity, focusing on the needs of low- and middle-income earners.

4. Recommendations for Sustainable Mortgage Practices

A. Policy Reforms

• Introduce policies to regulate interest rates and reduce the cost of borrowing.
• Develop comprehensive building codes that promote affordable and environmentally sustainable housing.

B. Diversified Financial Models

• Implement alternative financing options such as rent-to-own schemes and micro-mortgages.
• Encourage peer-to-peer lending and crowdfunding for housing projects.

C. Incentives for Green Housing

• Offer tax breaks or subsidies for developers and homeowners who adopt green construction practices.
• Promote the use of renewable energy systems in housing developments.

D. Strengthening Institutional Capacity

• Equip financial institutions with tools for effective risk assessment and management.
• Train real estate developers on sustainable practices and cost-efficient construction methods.

E. Collaborative Efforts

• Foster partnerships among government bodies, financial institutions, developers, and civil society organizations.
• Encourage international support for funding and technical expertise in sustainable mortgage practices.

5. Conclusion

The failures of unsustainable mortgage practices in Ghana provide valuable lessons for building a more resilient and inclusive housing finance market. By addressing issues such as affordability, regulatory oversight, and environmental sustainability, stakeholders can create a mortgage system that meets the needs of Ghana’s diverse population. Sustainable mortgage practices are not only essential for reducing the housing deficit but also for promoting economic growth and social equity in the long term.

Meet the Author

View Profile

---

Emmanuel Amoabeng Gyebi

Accountant

follow me