The history of Ghana’s housing finance system has been chequered with failed attempts to establish an efficient mortgage finance system; which is touted as the most capable and superior financier of housing. The mortgage market in Ghana like many developing economies is a form of Braudel’s Bell Jar; which according to Hernando De Soto skews the market to the rich. This market is conceptually set within an economy of weak institutional property law, which undermines the intrinsic basis of a mortgage; the guarantee of property as security for a loan is hugely constrained.
This coupled with a lack of or inadequate sources of long-term finance, low income levels, high and increasing inflation rate as well as exchange rate fluctuations, the lack of refinancing and reliable credit rating mechanisms are symbolic of a risky lending environment; thus, serving as a disincentive to long term investments. The composite of these factors has resulted in the current astronomical mortgage interest rates, averaging 30%. Hence, about 90% of Ghanaians made up of the low and middle-income earners are excluded from the mortgage market.
The maximum term of a mortgage in Ghana is 20 years whereas its 30 years and more in most developed economies. Undoubtedly, a long-term source of funding reduces the interest rate and monthly mortgage repayments and thus improves affordability. According to the SSNIT, only 112,522 out a total membership of 1,390,945; representing approximately 8% are pensioners. Research has also revealed that the majority of SSNIT members are between the ages of 31-40 years and have worked for less than 16 years. Interestingly, just a hand full of the members in this age group can afford a mortgage to purchase the least developer built unit of about GH¢30,000. However, they have about 25-30 years more to work towards retirement.
The above statistics reveal that the SSNIT has a youthful pension membership which presents the 2nd tier of the new pension scheme as a possible source of longer term mortgage finance than hitherto. Section 103(2) of the National Pension Law (Act 766) allows a member to use that member’s 2nd tier benefits to secure a mortgage for the acquisition of a primary residence. Similar provisions in the pension laws in most countries in Southern Africa and Singapore has engineered what has emerged as pension loans and pension-secured loans for housing.
Pension loans are direct loan from the fund, which is secured by the fund in two ways: over the member’s accrued benefits or effectively as a mortgage loan in favour of the fund over the property in question. Pension-secured loans on the other hand enable contributors to secure housing loans with their accumulated benefits from third party; the pension fund (or administrator) in this case acts as a guarantor. This allows members to release the equity in their pension to improve their housing situations.