The relative importance of mortgage pricing determinants in mortgage affordability in Ghana
Owusu-Manu, D. and Pärn, E.A. and Donkor-Hyiaman, K. and Edwards, D.J. and Blackhurst, K. (2016) The relative importance of mortgage pricing determinants in mortgage affordability in Ghana. Journal of Engineering, Design and Technology, 14 (3). pp. 563-579. ISSN 1726-0531
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Abstract
Purpose
The purpose of this study is to explore the mortgage affordability problem in Ghana, an issue that has been associated inter alia with high mortgage rates, which results from the high cost of capital, an unstable macroeconomy and unfavourable borrowers’ characteristics. Concurrent improvements in both the macroeconomy and borrowers’ characteristics have rendered the identification of the most problematic mortgage pricing determinant difficult, consequently making the targeting of policy interventions problematic.
Design/methodology/approach
This research sought to resolve this aforementioned difficulty by providing empirical evidence on the relative importance of mortgage pricing determinants. A data set of mortgage rates of selected Ghanaian banking financial institutions from 2003 to 2013 was examined and analysed by applying Fisher’s model of interest rates and an ex post analysis of the standard regression coefficients.
Findings
The risk premium factor emerged as the most important determinant in Ghana compared with the inflation premium and the real risk-free rate, although all are statistically significant and strongly correlated with mortgage rates.
Originality/value
This study provides an insight on the relative importance of mortgage pricing determinates and subsequent macro-economic guidance to support policy interventions which could reduce mortgage rates/enhance mortgage affordability. The paper specifically aims to engender wider debate and provide guidance to the Ghanaian Government and/or private enterprises that seek to provide affordable mortgages. Further research is proposed which could explore ways of reducing mortgage rates as a means of engendering social equality and adopt innovative international best practice that has already been tried and tested in countries such as South Africa and the USA.
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