The Nexus between Valuation Accuracy and Mortgage Finance: A Nigerian perspective

Extant empirical Nigerian studies have consistently established considerable inaccuracy in real estate valuation in the country. This study examines the effects of inaccurate valuation on provision of mortgage finance in Nigeria as mortgagees attempt to mitigate the imminent credit risk accentuated by uncertainty in valuation. Using the personal survey technique, the study sought lenders‟ perception on the implications of inaccurate mortgage valuation on their mortgage finance policies. Secondary data include results of previous studies on valuation accuracy in Nigeria. The study revealed, among others, that inaccuracy in mortgage valuation, particularly over-valuation, is prevalent in the study area and mortgagees are already reacting to the phenomenon by putting in place quality control measures aimed at minimizing inaccuracy. More importantly, the ensuing policies on loanto-value ratio and other conditions for mortgage loan have the combined effects of limiting the flow of mortgage funds into the real property investment sector of the country. To address the situation, the study calls for collaboration between the accounting, banking and real estate valuation regulatory bodies in Nigeria with particular regards to valuations for mortgage and financial purposes, as it is being witnessed in more advanced countries, and is tactically promoted by the International Valuation Standards Committee (IVSC) via the Basel Accords. This paper is a timely investigation of an issue that has potentially grave and encompassing implications. The study is largely novel as it is evidently the first to examine empirically the interface between valuation accuracy and mortgage finance policy in Nigeria.