Shorter home loans could shut many out of housing – economist

Prime Minister Elijah Ngurare's call for a review of Namibia's home loan financing model could have unintended consequences if repayment periods are shortened without addressing affordability challenges, Simonis Storm economist Almandro Jansen has warned.

Speaking at the Budget Reform Roll-Out Workshop in Windhoek on Monday, Ngurare asked why a N$2 million vehicle can typically be paid off within five or six years while a house of the same value often takes 20 years or more to settle. He called for discussions with commercial banks on how housing finance can better serve Namibians.

Responding to the issue, Jansen told Namibian Sun on Tuesday that the difference between vehicle finance and mortgage lending comes down to affordability, the lifespan of the asset and how banks manage risk.

"A residential property is a long-lived asset. A well-maintained house has an economic life spanning several decades, while the land it sits on is, in principle, perpetual," he explained.

"A vehicle, by contrast, is a depreciating asset with a useful economic life of roughly eight to 15 years."

Jansen said banks generally match the repayment period of a loan to the expected lifespan and value of the underlying asset. Financing a vehicle over 20 years would expose lenders to significant risk because the asset's value may have largely disappeared long before the loan is repaid.

Not arbitrary

Affordability is another key factor.

Using a N$2 million mortgage at an interest rate of 11.5% as an example, Jansen said repayments over 20 years would amount to about N$21 500 per month. Shortening the repayment period to seven years would increase the monthly instalment to roughly N$35 400.

"That is about a 65% increase and would immediately disqualify many borrowers under normal debt-service-to-income requirements."

Bank of Namibia governor Ebson Uanguta echoed a similar view on Tuesday, saying long mortgage repayment periods are largely driven by affordability rather than arbitrary decisions by banks.

"The reason why the banks are giving us 20 to 30 years is just because of the affordability," Uanguta said.

He added that borrowers who are able to afford higher monthly repayments can opt for shorter repayment periods.

Jansen said Ngurare had raised a legitimate concern about housing affordability but warned that reducing mortgage terms alone would not necessarily make homeownership more accessible.

"If repayment periods were capped at 15 years without a corresponding decline in interest rates or increase in household incomes, the immediate effect would be to raise monthly instalments beyond the reach of many prospective buyers," he said.

He warned that such a move could reduce access to housing finance, increase the risk of defaults and place additional pressure on the property and construction sectors.

Welcome to discuss

Standard Bank Namibia economist Helena Mboti said the bank welcomes government's call to examine how housing finance can better serve Namibians.

"We share the goal of making homeownership more accessible for all," she said.

Mboti added that the bank supports engagement between policymakers, regulators and the banking sector on housing affordability issues, while remaining committed to responsible lending and the long-term stability of the housing market.

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