Thousands of mortgage customers are being blocked from the best available interest rates while huge exit charges prevent them from switching banks.
HSBC Middle East, one of the country's largest mortgage providers, has cut rates to as low as 3.99 per cent for new applicants - but many long-standing customers continue to pay between 6 and 7.5 per cent. The difference can equate to thousands of dirhams in monthly instalments for an average villa.
"The guys who have been the good payers and the loyal customers are being stuffed," said Mark Ruddock, a pilot based in the UAE with a home in the Al Hamra Village development in Ras Al Khaimah. "If I was to close my account now and then walk back in, I'd instantly get a 2.5 per cent rate decrease."
HSBC is privately offering reduced rates to clients who complain about the mismatch - but the interest charges on offer are typically still more than they are willing to offer new customers.
Emails seen by The National from the HSBC mortgage department to customers reveal it is routinely cutting rates for homeowners that challenge the lender.
It is typically offering deals of 5.49 per cent to people previously paying between 6 per cent and 7.5 per cent.
Some customers are also being asked to sign security cheques for the entire balance of their mortgage before being allowed to tap cheaper deals.
Homeowners seeking to move their mortgages to more competitive lenders are being hammered with huge penalty fees.
HSBC charges a 3 per cent fee on the outstanding loan amount for customers who want to avail of a better deal with a competitor. On top of that comes a Dh2,500 (US$680) mortgage closure fee and Dh500 charge just to write a letter. It means a homeowner wishing to move a Dh2 million HSBC Middle East mortgage to avail of a better product from another lender would need to pay Dh63,000 to the bank. Other lenders charge even higher fees to move a mortgage to a rival or settle it ahead of its maturity. Tamweel, an Islamic home finance company, charges as much as 4 per cent in early-settlement charges.
The situation prevents customers from choosing between banks and left many "trapped" in their homes, said Ali Al Nuaimi, who heads the Federal National Council's finance committee.
"Most banks try to control the attrition," said Mr Al Nuaimi. "Some banks are trapping [customers] financially ... they can't move, and if they move they will be charged penalties."
The Federal National Council is preparing to submit a recommendation to the Central Bank this month urging banks to lower their interest and profit rates for all customers, Mr Al Nuaimi added.
HSBC prices its products according to market conditions, said Rick Crossman, the head of retail banking and wealth management for the UAE at HSBC Middle East.
"Any time that we have a product that's priced one way, we don't go back and reprice everything for our extant and legacy customers," he said. "We work with customers and strive to treat them fairly."
HSBC pays among the lowest rates in the country to borrow money from other banks through the interbank market, according to data from the Central Bank.
Other bank customers have reported similar issues with other lenders.
"If you've been with a bank for five or six years, and you've always paid on time, you're thought of and treated worse than a new customer," said one property owner based in Dubai.
He claimed banks including RAKBank, Tamweel and Amlak Finance were among those that did not offer rates for new customers to existing mortgage holders.
Representatives of RAKBank and Tamweel declined to comment. Amlak Finance could not be reached for comment.
"Maybe banks have not been generous passing on discounts to clients but I'm afraid they are more than entitled to do that providing they have adhered to the terms and conditions agreed with the client at the point the mortgage was taken," said Simon Burras, an associate at Holborn Assets, a financial adviser.
Property prices in the Emirates have tumbled by more than half since peaking in the second half of 2008. Now the market is stabilising, helped by the improved availability of mortgages, according to the property consultancy Cluttons.
Some owners who took out mortgages at the peak of the boom fled the country when banks threatened to cash security cheques after the mortgage debtors missed payments.
Bounced cheques can attract criminal proceedings and jail sentences for offenders in the UAE.