Cedi stability boosts mortgage market confidence

The cedi’s strong performance against the dollar in 2016 so far, breaking the seasonal first-quarter depreciation curse, is expected to restore some much-needed confidence in the mortgage market, analysts have said.

Kojo Addo-Kufuor, Chief Operating Officer of Ghana Home Loans - a leading mortgage player, noted that stability generates more interest. “When there is stability people are less nervous. It is stable though at a higher rate; but stability is good. We like stability,” he said.

Edward Botchway, Chief Financial Officer at Ecobank Ghana, added that stability helps long-term planning and mortgages are long-term decisions; and so this relatively short stable period can be a good platform to renew confidence.

“We want to see a longer period of stability, but the trend is in the right direction. We clearly need stability in the cedi, and this is something we would want to see continue from now till the end of the year,” he said.

The mortgage market has been one of the biggest sufferers in the cedi’s battles for stability against the major trading currencies, especially the dollar.

With more Ghanaians preferring dollar-denominated mortgages than cedi-backed ones due to the lower interest rates, a lot of mortgage holders suffered during the cyclical first-quarter cedi depreciation over the last three years, since the cost of servicing their mortgages goes up.

This, according to industry analysts, has led to a general slowdown in the mortgage market -- with Ghanaians uncertain about the market and adopting ‘a-wait-and-see-attitude’.

But players are now sounding optimistic about the market’s prospects with the cedi’s first quarter resilience. The cedi lost only 1.4 percent of its value against the dollar as compared to 14.6 percent in the same period last year.

In the first quarter of 2014, the cedi depreciated by close to 18 percent -- in a year that saw the central bank introduce a raft of forex measures which were later repealed after a severe backlash from the public.

With the nation going to the polls in November, some analysts feared government’s fiscal imprudence could translate into poor cedi performance amid poor forex inflows, especially due to lower prices for commodities.

The cedi has however stood its ground, nearly eroding all gains made by the dollar since turn of the year. At the beginning of the year a dollar cost GH¢3.7823, but the local currency closed the quarter trading at GH¢3.8365 to a dollar -- indicating depreciation of a little above 1 percent.

Credit ratings agency Fitch, in a report issued last month, also forecasted that the local currency will experience greater stability in 2016 and lower levels of depreciation.

The agency expects the cedi to trade at an average exchange rate of GH¢4.1/US$: this would be a depreciation of about 8 percent compared with the 22 percent depreciation that the cedi experienced in the previous year.

Affordability as against stability

While there is stability there are calls for mortgages to be made more affordable, especially the cedi-backed mortgages.

Mr. Addo-Kufuor explained that there is stability and then affordability; but at the moment the rates are high and so affordability is still an issue, but that will correct itself over time.

“If stability continues at this rate then affordability won’t be an issue anymore, especially for a few more months and years; but for the first quarter we are fine,” he added.

Mr. Botchway noted that rates are very high at the moment when it comes to cedi-denominated mortgages. “But on the dollar front, to the extent that we have some stability on the currency front it is helpful; but on cedi-backed mortgages the interest rates need to come down,” he said.