Financing housing in Ghana: challenges to the development of formal mortgage system

Although the factors which influence the development of housing finance systems in developing countries have been identified in the literature, the interconnectedness of these factors has not been adequately examined. This paper employs the systems theory to examine the interrelatedness of the factors that influence the demand and supply of mortgage products in Ghana. The paper shows that as a result of supply and demand constraints, the Ghanaian mortgage market is still largely underdeveloped. Supply constraints include capital inadequacy of the banks, inability of the financial institutions to establish credit worthiness of potential borrowers and unfavourable macro-economic conditions which make investment in long-term loans unattractive to the banks. Demand-side constraints include high house prices, high interest rates, unfavourable terms of loan repayments, low income levels and the cultural belief that it is not good to be in debt. We conclude that given the interconnectedness of these factors, a holistic programme that resonates with systems thinking will be required to develop a well-functioning housing finance system in Ghana.