Proceedings of The Ahmadu Bello University Postgraduate Students’ Conference 2016

© School of Postgraduate Studies, Ahmadu Bello University Zaria, Nigeria

IMPACT OF MORTGAGE CREDIT ON ECONOMIC GROWTH IN NIGERIA

EBIRE, Kolawole and BELLO, Sabo
Department of Business Administration, Ahmadu Bello University, Zaria
Corresponding Author: Tel. (+234) 07065681464, email: ebirekolawole@yahoo.com

ABSTRACT
This study examines the impact of mortgage credit on economic growth in Nigeria. The data used were
collected from the Central Bank of Nigeria statistical bulletin for a period of 24years from 1992-2015.
Mortgage credit was proxy by mortgage loans advance by a Primary mortgage institutions (PMIs) as
well as other macroeconomic variables which include broad money supply (M2) and Inflation rate
(infr) while economic growth was proxy by Gross Domestic Product (GDP). Unit root test was carried
out using Augmented Dickey Fuller and Phillips Perron test and the findings showed that all variables
were stationary at first difference. The error correction mechanism result showed that there exist a long
run relationship among the variables therefore, we recommend that mortgage credit should be made
available to the public and the CBN should ensure that inflation rate are kept as low as possible,
because high inflation rate impedes the impact of credit on economic growth.

Keyword: Mortgage credit, Economic growth, Gross Domestic Product, Error Correction Mechanism

1.0 Introduction existing primary mortgage institutions was

The importance of housing has been identified
as an essential need of citizenry. According to
Sanusi (2003) it is one of the three most
important basic needs of mankind, the others
being food and clothing. He further explained
that housing is a very important durable
consumer item, which impacts positively on
productivity, as decent housing significantly
increases workers’ health and wellbeing, and
consequently, growth. It is one of the indices
for measuring the standard of living of people
across societies. A major area of concern has
been mortgage financing, which has often been
singled out as one of the most formidable
constraints in the housing sector. Mortgage
finance (credit) is generally referred to as a long
term loan at market interest rates extended by a
formal sector financial institution typically one
specialized in housing such as building society,
that qualifies mortgagers based on underwriting
criteria. This involves payment of fixed
monthly fee, payment at fixed interest rate that
varies with the rate of inflation and using a lien
on the property which mortgager must have full
legal title. Extending these loans affect not only
the wellbeing of its citizens, but also the general
performance of other sectors of the economy.
Consequently, programmes of assistance in the
areas of finance and provision of infrastructures
has been designed by governments to enhance
its adequate delivery. The Central Bank of
Nigeria (CBN, 2014) noted that in early 2000,
the amount of investible funds available to the
N36.7billion. While, Yaukumo (2011) opined
that 720,000 housing units is required yearly to
meet the Millennium Development Goals
(MDGs) on housing in Nigeria with a mortgage
financing gap of over N56 trillion needed. This
will invariably trigger the growth of the
economy as several sectors would benefits from
such funds.
Given the foregoing, there are dearth of
research on the impact of mortgage financing
on economic growth in the context of Nigeria.
Prior studies in were focused on the role of
secondary market in expanding the availability
of funds for housing in Nigeria (Ojo, 2009),
options for mortgage financing (Ayodele,
Obafemi & Sabastine, 2013) and Housing
financing options in Nigeria (Kama, Yakubu,
Bewaji, Adigun, Adegbe & Elisha, 2013)
commercial bank loans to other sectors. Hence,
this study is an attempt to fill the existing gap
by empirically examining the impact of
mortgage credit on economic growth in Nigeria
taking cognizance of the amount of money
supply and the inflation rate.
2.0 Literature Review
Housing is said to be one of the basic needs of
man. The housing sector plays a pivotal role in
a country’s development as it directly
influences not only the wellbeing of the
citizenry but also the general performance of
other sectors of the economy. The significance
of mortgage financing in the provision of
adequate housing cannot be overemphasized

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Proceedings of The Ahmadu Bello University Postgraduate Students’ Conference 2016
© School of Postgraduate Studies, Ahmadu Bello University Zaria, Nigeria

which has attracted both public and private that low awareness about existing mortgage
participation. financing arrangements, low financing capacity
Mortgage as defined by Kama et al. (2013) of the mortgage institutions and inefficient
refers to an agreement under which an title/legal framework among others remain the
individual borrows money from a lender major impediments to the growth of the sector.
(Usually a mortgage lending institution) to Ojo (2009) reviewed the role secondary
purchase a property and pledges same property markets can play in expanding the availability
such that the lender take possession of the said of funds for housing in Nigeria. The study
property if the borrower fails to repay the concluded that in spite of this global trend, both
money back. On the other hand, Ferguson Federal Mortgage Bank of Nigeria (FMBN)
(1999) defines mortgage finance as a long term and mortgage banks in Nigeria have not fully
loan at market interest rates extended by a engaged in modern mortgage financing options
formal sector financial institution, typically one discussed hence the need to adopt far reaching
specialized in housing such as building society, approach for the benefit of all participants
that qualifies mortgagers based on underwriting within mortgage industry as proposed in this
criteria. The characteristics include fixed thesis.
monthly payment at fixed interest rate that 3.0 Methodology
varies with the rate of inflation and using a lien The study used annual time series data covering
on the property which mortgager must have full the period from 1992 – 2015 which were
legal title. Ogunsemi and Abiola-Falemu obtained from Central Bank of Nigeria (CBN)
(2005) defined mortgage finance as a statistical bulletin. The dependent variable
specialized type of credit transactions involving which is economic growth was proxy by GDP
the granting of long-term finance for housing at current basic prices. The independent
development. variables is mortgage credit (MORTCR) by
2.1 Empirical Studies Primary Mortgage Institutions (PMIs), broad
Black, Hancock and Passmore (2010) analyzed money supply (M2) and inflation rate (Infr)
response of banks to monetary policy in the were introduced as moderating variables.
context of mortgage funding and mortgage Ordinary Least Square (OLS), Cointegration
lending in the United States of America and Error Correction Mechanism (ECM) are
between 1995-2005 using panel regression. employed in the analysis of the time series data.
Finding indicated that banks significantly Model Specification
reduces mortgage lending in response to The multiple regression is specified as:
monetary contractions. LGDP = 0 + 1LMORTCR + 2LM2 + 3Infr
In another vein, Ayodele et al. (2013) explored +
the options for making mortgage finance Where,
sustainable for the entire population in Nigeria. LGDP = log of Gross Domestic Product
Their study identified the non-sustainability of LMORTCR = log of mortgage credit
mortgage finance in Nigeria as a problem on LM2 = log of broad money supply
housing delivery. Infr = Inflation rate
Kama et al. (2013) on the other hand, examined 1- 3 – coefficient of the explanatory variables
various housing financing policies in Nigeria, = error term
with a view to identify the challenges inhibiting The following are a priori expectations of the
the optimal performance of the mortgage coefficient of the model
financing structures in Nigeria. The study found 1, 2 > 0; 3<0
4.0 Results and Discussion
Unit Root Test Results
Table 4.1: Augmented Dickey-Fuller and Phillips-Perron Unit Root Tests
Variable ADF t-statistics Order PP t-statistic Order
LNGDP -5.416411*** 1 -5.409803*** 1
LMORTCR -3.525089** 1 -4.467737*** 1
LM2 -2.860317** 1 -2.904872** 1
INFR -6.673109*** 1 -4.104843*** 1
Note: *** and ** represent significant level at 1% and 5% Mackinnon critical values

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Proceedings of The Ahmadu Bello University Postgraduate Students’ Conference 2016
© School of Postgraduate Studies, Ahmadu Bello University Zaria, Nigeria

We applied both ADF and PP unit root tests to
check for the stationarity of the individual time
series. The summarized results in table 4.1
indicates that none of the series were stationary
at levels but became stationary after first
difference, that is, they are integrated of the
order one I(1).
4.2 Cointegration Test
Since the variables were not stationary at levels,
it is a clear indication that there exists a long run
relationship among the variables. Hence, we
subject the variables to cointegration test using
Johansen test of cointegration, but first, we
established the lag criteria and 1 lag is more
appropriate.
The Johansen cointegration test presented in
table 3.2 indicates at least one cointegration
equation. Hence, it can be concluded that the
there exists a long run relationship among the
variables.

Table 4.2: Johansen Cointegration Rank Test Result

Rank Trace statistics 5% Critical value
0 72.16425 47.85613*
Trace test indicates 1 cointegrating eqn(s) at the 0.05 level
* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values

4.3 Error Correction Mechanism

Variable Coefficient Std. Error t-statistics
D(LMORTCR-1) 0.000718 0.000705 1.017123
D(LM2-1) 0.763473 0.157324 4.852869***
D(INFR-1) -0.004256 0.001442 -2.950508***
ECM(-1) -0.521557 0.191918 -2717608***
R2 = 34.2%, Adj. R2 = 23.9% F-statistics = 259.67*** DW = 2.12
Note: *** and ** represents significant level at 1% and 5% respectively

The ECM is in line with our a priori
expectations. The negative sign and the
statistical significance of the ECM implies that
the speed of adjustment between the short run
to its long run equilibrium is 52%. This implies
that the ECM will adequately correct any
deviations of the short run dynamics to its long
run dynamics by 52%. The coefficient of
determination denoted as R2, shows that 34.2%
of the variations in GDP can be explained by
the explanatory variables. After adjusting the
R2, 23.9% of the variations can be explained.
The F statistics which measures the fitness of
the model shows that the model is statistically
fit as indicated by the significance level. Also
the Durbin Watson shows the absence of serial
correlation.
The empirical results show that there is a
positive short run relationship between broad
money supply and GDP which is in line with
our a prior expectation. This implies that an
increase in money supply will increase GDP by
76%. Also, our findings indicated a negative
but significant relationship in the short run
between inflation rate and GDP which is in line
with our a priori expectation. This implies an
increase in inflation rate impedes economic
growth.
Diagnostic tests were carried out on the
residuals of our analysis. The residuals were
tested for serial correlation using Breush-
Godfrey serial correlation LM test. Findings
indicated that there was no serial correlation.
Lastly, the study tested for Heteroskedasticity
using Breusch-Pagan-Godfrey test and findings
indicated that the residuals were not
heteroskedastic (i.e. there were
homoskedastic).
5.0 Conclusion
In view of the findings, the study concludes that
in the long run, mortgage credit as well as broad
money supply and low inflation rate impacts
economic growth. These findings reinforces
previous work (Black et al, 2010) that an
expansionary monetary policy through increase
in broad money supply increases the
availability of mortgage credit which will
enhance economic growth in Nigeria. In this

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Proceedings of The Ahmadu Bello University Postgraduate Students’ Conference 2016
© School of Postgraduate Studies, Ahmadu Bello University Zaria, Nigeria

regards, we recommend that mortgage credit Yaukumo, G. (2011). The role of FMBN in the
should be made available to the public and the development of the Nigerian Mortgage
CBN should ensure that inflation rate are kept market, A Paper Presented at the 1st Aso
as low as possible, because high inflation rate Housing Exhibition & Conference 17th –
impedes that impact of credit on economic 18th March.
growth.
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