Dubai: Feel your mortgage payment is getting too heavy on monthly expenses? Chances are the bank might be willing to listen to you.
More banks in the UAE are offering deals on their existing mortgage loans, where they reduce the interest rate charged for a one-year period. Banking sources say they are doing so because they get to pass on the recent cut in interest rates to their existing customers.
And that by doing so, in some cases, it helps those mortgage holders who might have lost their jobs recently and who need some time to readjust.
There have been calls for interest rates to be reduced further, as well as for the down payments to be relaxed. But until such time, post-handover payment options have been the instrument of choice for buyers.
One Dubai resident was offered 6 per cent for a 12-month period as against the 7.9 per cent he had on a 20-year mortgage loan.
“This is the 11th year I’m paying off the loan on the apartment — I’m still in two minds on whether to take up the offer,” the resident said.
“A one-year reduction does not add up to major savings, the way I see it.” The original loan was for Dh1 million.
It was last month that the US cut its base rate by 0.25 per cent, and which is now reflected in local lending rates as well. Another cut looms on the horizon, which could happen as early as next month.
2.75%is the current minimum mortgage rates for the first year
Can’t local banks help further by extending their offers for longer than one year?
“They have been cautious to not extend the rate advantage for a longer term as we feel their borrowing costs are still high due to economic conditions in the region,” said Dhiren Gupta, Managing Director at 4C Mortgage Consultancy.
A word of 'caution'
He suggests that someone wanting to sign up for the one-year reduced rate should do so with “caution”.
“There might be the initial lucrative offer for one year, and thereafter it might be backed up to higher bank margins. Moreover, the exit fee (when the mortgage holder wants to shift to another lender) clauses could also differ from the original charges.”
Mortgages play second fiddle to post-handover plans
The UAE’s mortgage market hasn’t seen much of a growth in the last two years, as more buyers are opting to pick up their property directly from the developer through post-handover payment plans. This way, they do not need to bring in a bank to offer them mortgages, or go through the often time-consuming process that precedes winning an approval.
3%charges for cancelling an existing mortgage contract
“Mortgage-backed sales are flat to lower as developers play the role of banks,” said Uzair Razi, Chief Investment Officer at Global Capital Partners. “The down payment requirements too are low, which is why more buyers see developers as a viable alternative to whatever banks can come up with.
“There have been calls for interest rates to be reduced further, as well as for the down payments to be relaxed. But until such time, post-handover payment options have been the instrument of choice for buyers.”
Stiff exit charges for mortgage transfers
These are all reasons for local banks to do whatever they can to help — and retain — their existing mortgage clients.
With lower growth on their new loan portfolios, there is intense competition among banks to poach an existing mortgage holder from another lender.
Lock-in at 4.5% for first 3 years
“My neighbour recently switched his lender and was able to get a lock-in for the first three years at 4.5 per cent,” said one Dubai resident.
“But it’s not as easy as it used to be in the past — cancelling an existing mortgage contract with a bank comes to 3 per cent or so. And there is also the joining fee with the new lender, plus paying off the new mortgage registration fee at Dubai Land Department.
“After all these expenses, one has to be sure that some cost benefits will still be there.”
A sentiment that Gupta agrees with.
“Given the significant increase in exit fees, mortgage buyouts have been limited. Also, with banks offering generous retention offers, buyouts do not appear to be a cost saving affair. For that, we need a substantial change in mortgage pricing.”