About a year back, if someone were to discuss housing finance providers in the UAE, no one would have thought of United Arab Bank (UAB). Today, this Sharjah-based bank has caught attention in the market by setting a benchmark lending rate offering mortgages for 3.99 per cent interest, something that was inconceivable just a few years ago.
UAB was established in 1975 and since then it has been largely content with its core banking operations. Three years ago, the bank initiated a new retail strategy. It currently operates 14 branches throughout the UAE, offering tailor-made financial services in both corporate and retail banking.
Last year, finding the residential market ripe for home finance solutions, it launched its first mortgage product and since then this lender has been striving to carve a niche for itself in home finance.
Speaking to Property, Tom Smith, executive vice-president group head of retail banking, describes how the bank has broken the mould and provides useful tips to prospective homeowners on choosing the right mortgage plan.
When other banks are scaling down their operations and downsizing, UAB seems to be taking the opposite route — expanding networks and entering into new product territories. What is the rationale behind this strategy?
Until recently, UAB was a corporate/commercial bank with limited retail presence both in terms of products, services and distribution. UAB's aim has been to replicate our success in commercial banking in the retail space.
While most banks had to re-consider their strategies and the scale of their operations in the aftermath of the economic downturn, we are one of the few banks to have posted growth in profits as we had not deviated from our core banking principles that have served us so well for 36 years.
We saw a tremendous opportunity to introduce a range of attractive value propositions that offered better value to individual customers and encouraged them to experience our high-end service model.
Being a local bank, UAE nationals are one of our key target segments along with expatriates whose futures are deeply rooted in the UAE and the region. This resulted in an expansion into the northern emirates and Abu Dhabi markets in order to add to our existing network.
Why has the mortgage market suddenly become very competitive? Why did UAB, a bank relatively unknown in the mortgage market, consider this route?
Current property prices have stirred up significant interest in the market. People can now afford to buy a home that was previously out of their reach. In addition, the last few years have seen the market change from being investor-driven to an end-user market where investors have a long-term commitment to the region and UAE. This has meant customers are looking for affordable mortgage solutions. In the past, price sensitivity was much lower and customers did not mind paying a higher rate for a mortgage as they intended to sell the property in the short-term at a premium.
We at UAB felt this was the right time to enter the market with an attractive offer aimed at first-time home buyers as well as existing mortgage customers in the market who are currently servicing high rate mortgages. This allows them to switch to a bank that is offering an attractive interest rate and quick turnaround times.
UAB now has the distinction of offering the lowest interest rate for mortgages. What made you get so aggressive? Aren't the risks too high considering the number of bad loans already weighing on banks?
We are targeting customers who are committed to the UAE and are looking for a mortgage partner over the long term. Unlike personal loans, mortgage loans tend to last much longer, which ensures an attractive long-term relationship value and profitability for the bank. Our policy to lend on completed developments ensures we do not have to contend with risk associated with the developer. Additionally, we have seen price stability in select developments, which is a positive sign for the market. While the current interest rate environment allows UAB to extend attractive rates, like all other banks, we follow a variable rate pricing model, which gives us the flexibility to manage our rates to suit the prevailing market conditions.
Apart from the lowest interest rate, how different is your latest offering from those at other banks? Isn't there something more than just attractive interest rates? People are looking at LTV (loan-to-value ratio), hassle-free mortgages and minimal penalties should they decide to pay off earlier than the allotted time.
Apart from the interest rate, we offer a wide range of features such as LTV of up to 85 per cent, Islamic and conventional financing options, [schemes for] all completed properties across all emirates, refinance options and quick turnaround time. Our team has been closely associated with the mortgage industry since inception.
What are the mortgage products you offer?
Across Islamic and conventional financing platforms, we offer standard variable rate mortgages with fixed-rate options for initial periods of one, three and five years, a refinance facility for existing mortgage holders of other banks and equity release on fully paid property.
Are you providing Sharia compliant financing? Can non-Sharia compliant finance be rescheduled as Sharia compliant or vice versa?
Yes, we are. It is the individual choice of a customer if he wishes to choose either a Sharia or a non-Sharia mode of financing. If a customer wishes to shift his mortgage from one mode to another, it is possible.
Is UAB's core customer base primarily Emiratis? You don't appear to be seriously targeting the massive expatriate population who might be looking for home loans. Why not? What about mortgages for non-residents?
This is not true. Our preferred customer segment is UAE nationals and committed expatriates. Our 14-branch network across all the emirates and our direct sales teams address the needs of our target segment. With regard to non-residents, they are not part of our present target market for now.
Some banks have not entered into the mortgage market due to concerns that the property owner does not have clear title to the land, only the building. Do you have these concerns?
Any customer who decides to purchase a property needs to be aware of the rules and regulations of [Dubai's] Real Estate Regulatory Agency (Rera). The bank's key focus is to ensure the mortgage on the property is registered.
What are the criteria banks look for when consumers approach them for a mortgage loan? How do you ensure you are lending to the right customer?
While each bank has its own policy and underwriting criteria when it comes to mortgage lending, the key determinants are usually the following: the customer's income, employment profile (length of the person's service, company profile etc.), business performance of self-employed customers, credit history in the UAE and loan-to-value ratio.
What advice do you have for customers looking for a suitable mortgage?
The mortgage process needs to be well planned. Below is a step-by-step guide to a hassle-free mortgage.
1. Find out how much you can borrow. This will help you understand your eligibility and your monthly outgoing.
2. Speak to a reputed realtor to identify a property that fits into your budget.
3. Sign a memorandum of understanding with the seller with a reasonable target date of four to six weeks to complete the transaction.
4. Obtain a formal offer from the bank.
5. Complete the mortgage registration formalities at the Land Department and move into your home.
Homeowners need to compare their existing mortgage terms with current offers to determine savings potential if they switch over to another bank.
What about hidden costs? Many people have been taken by surprise when they are asked to pay extra for land registration, for instance. What is your advice to prospective homeowners?
As far as the mortgage is concerned, the bank details all fees and charges in the mortgage offer letter. It is the duty of the customer to ensure he or she is aware of charges levied by third parties such as the Land Department, developer, real estate broker etc. before he or she decides to purchase a home. Typically, the charges a customer needs to be prepared for when purchasing a home are as follows:
Transfer fees — 2 per cent of the sale price
Mortgage registration fees — 0.25 per cent of the loan amount
Broker commission (if an estate agent is involved) — usually 2 per cent of sale price.
Homes have become much more affordable and prices and mortgage rates are exceptionally attractive. However, what do you tell expatriates who are hesitant to buy a home because they consider it too risky?
Purchasing a home is a long-term commitment and is a decision that should not be taken lightly. While current prices are very attractive, customers should exercise caution to make sure they do not end up stretching their budget and placing strain on their finances.
United Arab Bank timeline
1975 Established as a joint venture between prominent UAE Investors and Société Générale.
2007 Commercial Bank of Qatar acquired a 40 per cent interest in United Arab Bank.
2009 Initiated a new retail strategy. Won Best Credit Card Design Award — VISA and Best Retail Website — Union of Arab Banks.
2010 Launched Sadara Wealth Management and Islamic Banking. Best Customer Service Award — Banker Middle East, First Vertical Islamic Credit Card — VISA.
2011 Launched Mortgage Product. Best Bank in UAE — Global Banking & Finance Review, Best Bank of the Year — Arab Investment Summit.