Estimating the number of outstanding mortgages in Malawi

The number of outstanding mortgages is one of the key indicators the Centre for Affordable Housing Finance in Africa (CAHF) uses to track the scale of mortgage lending at a country level, and the health of the mortgage market more broadly. Reported annually in the Housing Finance in Africa Yearbook, the indicators help determine which countries have an active mortgage market. The data is collected by a team of nearly 40 researchers appointed to compile country profiles for the Yearbook, most of whom are based in-country. Despite this widespread intensive effort, in 2019, this value was available for only 21 countries on the continent. This draws attention to the difficulty in accessing publicly available and credible data on housing finance in many African countries, which our Housing Finance Data Agenda for Africa project aims to address head-on.

Malawi is an example of a country with several data challenges which impact on the housing and housing finance sectors. Where data is not readily available from government, private or international sources, innovative approaches are needed to overcome existing data gaps. To this end, at CAHF we have developed a methodology to determine the closest estimate for the number of outstanding mortgages (i.e. the number of mortgages issued by formal financial institutions) in Malawi. The methodology can be broken down into three broad steps:

• Calculating the total estimated value of outstanding mortgage loans,
• Determining the average cost of a mortgage in Malawi, and
• Estimating the number of outstanding mortgages.

These three steps combined were used to arrive at a value that could contextualise the depth of Malawi’s mortgage market. This blog describes this estimation process.

Calculating the total estimated value of outstanding mortgage loans

Using reputable sources, we started by calculating the size of Malawi’s mortgage market as a percentage of gross domestic product (GDP) to determine the value of outstanding mortgage loans.

The size of Malawi’s mortgage market was 1.5 percent of GDP in 2014[1] and GDP was valued at approximately MK2.4 trillion[2] (US$6 billion at current prices).[3]

Malawi’s GDP in 2018 was approximately MK5 trillion[4] (US$7 billion).

The percentage increase in GDP between 2014 and 2018 is 16.7 percent. This increase is used to adjust the size of the 2014 mortgage market (as a percentage of GDP) upwards to determine a 2018 proportion. Therefore, the mortgage market was approximately 1.75 percent of GDP in 2018. Although GDP is a good starting point to adjust upwards, it is worth noting that mortgage market growth is driven by several factors including financial sector development, interest rates, inflation and even changes in income and mortgage affordability.[5]

The estimated value of outstanding mortgage loans in 2018 is therefore estimated at MK87.5 billion (US$122 105 428), which is calculated as 1.75 percent of Malawi’s GDP (MK5 trillion) in the same year.

To validate our estimation, this finding is triangulated with an analysis of the financial statements of key mortgage lenders, i.e. NBS Bank Malawi, National Bank of Malawi, Standard Bank, FDH Bank and CDH Investment Bank.[6]

• Comprehensive financial statements for FDH Bank and CDH Investment Bank were unavailable. However, as of December 2018, National Bank of Malawi and Standard Bank Malawi accounted for approximately half of the banking sector’s total assets and deposits respectively.[7] The two banks, along with NBS Bank, which has traditionally held the largest (70 percent) mortgage portfolio,[8] should give a good representation of the total mortgage lending market (see Table 1).

Table 1: Outstanding mortgage values of key lenders in Malawi

Source: Annual Reports (2018)

Note: Mortgage values may include both home loans and commercial mortgages

• The estimated total value of outstanding mortgages (MK87.5 billion), as per the GDP method used above, approximates the value of MK92.6 billion calculated in Table 1.
• For a fair estimation, an average of the two figures (MK87.5 billion and MK92.6 billion) is taken as the total estimated value of outstanding mortgages. This analysis therefore results in an average estimate of MK90 billion.

Determining an estimate for the average cost of a mortgage in Malawi

We then determined an estimate for the average cost of a mortgage in Malawi using a number of assumptions and proxies. The analysis considers the following information:

• The minimum house value that some commercial banks will extend credit on is MK5 million (US$35 460).[13]
• National Bank of Malawi provides a mortgage as small as MK500 000 (US$684.9) (this is likely to only be for home improvements), and the smallest mortgage value at Standard Bank is approximately MK4 million (US$ 5 479.8).[14]
• As at 26 July 2019, the total value of mortgages for NBS Bank stood at MK5.2 billion (US$7 012 906)[15], with a total of 521 outstanding mortgages within its portfolio.[16] By dividing these two data points, the average cost of a mortgage at NBS Bank is approximately MK10 million (US$13 955).
• The price of the cheapest newly built house is MK16 million (US$21 813).[17]
• We assumed little movement in the market for existing homes and used the price of the cheapest newly built house, i.e. MK16 million as a proxy for the cost of a mortgage in Malawi.

Estimating the number of outstanding mortgages  

Finally, using the averaged value of outstanding loans (MK90 billion) and dividing it with the average estimated cost of a mortgage (MW16 million), the number of outstanding mortgages is estimated to be 5 625.

Again, we can test the credibility of this figure by comparing to available data. Past reports found that formal housing loans totalled 1 665 in 2009, extended by NBS Bank (1 300), Standard Bank (31) and National Bank (334).[18] Assuming some growth in the mortgage lending market over the 2009-2018 period, together with the inclusion of both home and commercial loans in the methodology used, we arrive at a higher estimate for the total number of outstanding mortgages. This number is therefore likely to be lower for a country such as Malawi and; with further data triangulation, we could arrive at a more accurate value using this methodology.

Nevertheless, the estimate of 5 625 outstanding mortgages tells us something about the mortgage market, suggesting that access to formal mortgages is far beyond the reach of most Malawians. Past analysis of the housing market indicates that less than 1 percent of the Malawian population qualify for formal mortgage loans[19] and the estimated number of mortgages confirms this. The low access to formal housing finance characterising this market is mainly explained by low income levels, high levels of informal employment and limited affordability of mortgages,[20] including stringent terms and conditions attached to mortgage finance[21] (see the 2019 Housing Finance Yearbook country profile for Malawi).

The methodology used highlights the problems associated with the lack of data, which necessitates making several assumptions to determine estimates for key indicators. It further points to the importance and need for data. CAHF’s Data Agenda recognises this and the potential for data and market intelligence to be used to promote investment and improve policymaking in the affordable housing sector.

[1] This was the most recent figure from Housing Finance Information Network (online). Malawi Country Profile. Available at: https://housingfinanceafrica.org/documents/hofinet-malawi-survey/.

[2] Based on the 2014 annual average conversion rate of US$1 = MK411.88, on https://www1.oanda.com (Accessed 26 July 2019).

[3] The World Bank (online). Available at https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=MW (Accessed 24 July 2019.

[4] Based on the 2018 annual average conversion rate of US$1 = MK716.59, on https://www1.oanda.com (Accessed 26 July 2019).

[5] Omarjee, L. (2018). Little room for SA’s mortgage market to grow. Fin24. Available at: https://m.fin24.com/Economy/little-room-for-sas-mortgage-market-to-grow-moodys-20180618; Delmendo LC. (2019) South Africa’s house price appreciation remains below inflation. Global Property Guide. South Africa. Available at: https://www.globalpropertyguide.com/Africa/South-Africa/Price-History (Accessed 28 July 2019).

[6] Centre for Affordable Housing Finance in Africa (2019). Housing Finance in Africa: A Review of Africa’s Housing Finance Markets, Yearbook 2019. Pg. 175.

[7] Reserve Bank of Malawi (2018). Financial Stability Report. Pg. 7.

[8] Centre for Financial Regulation and Inclusion (2015). Malawi: Demand, Supply, Policy and Regulation, Diagnostic Report. Pg. 140.

[9] Based on the 2018 annual average conversion rate of US$1 = MK716.59, on https://www1.oanda.com (Accessed 20 December 2019).

[10] National Bank of Malawi (2018). Annual Report, 2018. Pg. 172.

[11] Standard Bank Malawi (2018). Annual Report, 2018. Pg. 100.

[12] NBS Bank (2018). Annual Report, 2018. Pg. 80.

[13] FinMark Trust. (2009). Access to Housing Finance in Africa: Exploring the Issues, No.8, Malawi. Pg. 14.

[14] Centre for Affordable Housing Finance in Africa. (2018). Pg. 182.

[15] Based on the conversion rate of US$1 = MK 741.49, as at 26 July, on www1.oanda.com.

[16] Engagements with NBS Bank’s Credit Department on 26 July 2019.

[17] Centre for Affordable Housing Finance in Africa. (2018). Pg. 181.

[18] Manda, M., Nkhoma, S. and Mitlin, D. (2011). Understanding Pro-poor Housing Finance in Malawi. Human Settlements Working Paper Series, International Institute for Environment and Development. Pg. 12 and FinMark Trust (2009). Pg. 24.

[19] Centre for Affordable Housing Finance in Africa. (2017). Housing Finance in Africa: A Review of Africa’s Housing Finance Markets, Yearbook 2017. Pg. 177.

[20] FinMark Trust. (2009). Pg. 18.

[21] Cloete, C. and Nyasulu, E. (2007). Lack of Affordable Housing Finance in Malawi’s Major Urban Areas. University of Pretoria. Pg. 9.