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The Relationship Between Inflation Rates and Mortgage Default Rates in Kwara State

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Background of the Study

Inflation is a key macroeconomic variable that can significantly impact various sectors of an economy, including the real estate market. In Nigeria, inflation rates have fluctuated considerably in recent years, with implications for housing affordability, the cost of construction, and the ability of homeowners to meet mortgage obligations (Agbonlahor et al., 2024). Mortgages, often used by individuals to finance homeownership, are sensitive to inflation as the cost of borrowing increases with rising interest rates, making it more difficult for borrowers to service their loans (Oni et al., 2023). Kwara State, located in the central region of Nigeria, represents an interesting case study due to its unique economic and demographic characteristics, including a growing middle class and a developing real estate sector (Adedeji et al., 2023).

The relationship between inflation and mortgage default rates is critical in understanding the stability of the housing finance sector in Nigeria. As inflation rises, the purchasing power of individuals decreases, making it difficult for them to meet their mortgage payments (Akintoye & Akinola, 2025). This has led to an increase in mortgage defaults, which can strain the financial institutions that provide these loans, thereby influencing the overall real estate market. In Kwara State, where the housing sector is experiencing significant growth but is also subject to inflationary pressures, understanding the link between inflation and mortgage default rates is essential for both lenders and borrowers.

Previous studies have shown that inflation negatively impacts mortgage affordability, leading to higher default rates, especially in developing economies where economic instability is more pronounced (Olayemi & Olaoye, 2024). However, the specific dynamics of this relationship within Kwara State remain underexplored. This study seeks to investigate how inflation rates influence mortgage default rates in the state, offering valuable insights for policymakers, financial institutions, and homeowners.

Statement of the Problem

In Kwara State, the rising inflation rates have led to increased financial strain for homeowners, particularly those who depend on mortgage financing. As inflation drives up the cost of living and interest rates, many borrowers are struggling to meet their monthly mortgage payments, resulting in a higher incidence of defaults (Jibril et al., 2023). Despite the growing concerns over mortgage defaults, there is a lack of detailed studies that focus on the relationship between inflation and mortgage default rates in Kwara State.

Financial institutions are faced with increased risk as the default rates climb, potentially affecting the stability of the local housing market and the broader economy. Furthermore, policymakers lack adequate data to design interventions that could mitigate the effects of inflation on the housing sector. This study aims to address these gaps by examining the specific impact of inflation on mortgage default rates in Kwara State, providing a clearer understanding of the dynamics at play.

Objectives of the Study

1. To examine the relationship between inflation rates and mortgage default rates in Kwara State.

2. To assess the impact of rising inflation on the affordability of mortgage repayments in Kwara State.

3. To explore strategies that can mitigate the effects of inflation on mortgage defaults in Kwara State.

Research Questions

1. How do inflation rates influence mortgage default rates in Kwara State?

2. What is the effect of inflation on the affordability of mortgage payments in Kwara State?

3. What measures can be taken to reduce the impact of inflation on mortgage defaults in Kwara State?

Research Hypotheses

1. There is a significant positive relationship between inflation rates and mortgage default rates in Kwara State.

2. Inflation negatively affects the affordability of mortgage repayments in Kwara State.

3. Government and financial institutions can implement strategies that reduce the impact of inflation on mortgage defaults in Kwara State.

Scope and Limitations of the Study

This study will focus on the relationship between inflation rates and mortgage default rates in Kwara State, Nigeria. It will analyze mortgage data from financial institutions, focusing on the period between 2023 and 2025. Limitations of the study include the availability and accuracy of mortgage default data, as well as potential biases in lender reporting. The study will not explore mortgage markets outside Kwara State, limiting the generalizability of its findings.

Definitions of Terms

• Inflation: A sustained increase in the general price level of goods and services in an economy over time, leading to a decrease in purchasing power (Oni et al., 2023).

• Mortgage Default: The failure of a borrower to make timely mortgage payments, resulting in the potential for foreclosure (Olayemi & Olaoye, 2024).

• Mortgage Affordability: The ability of homeowners to make mortgage payments without facing financial strain, often influenced by factors such as income, interest rates, and inflation (Adedeji et al., 2023).





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