Banks are charging old mortgage customers almost Dh50,000 a year more in interest than new ones on an average apartment, despite tumbling interbank borrowing costs.
Homeowners who took out a floating rate mortgage in 2008 are on average paying rates of more than 7 per cent, according to data from Pecunia.me’s recently launched mortgage map.
But homeowners who took financing this year report paying average rates of about 4.5 per cent. The average difference is more than 2.5 percentage points, the data showed. The mortgage map includes rates from about 100 homeowners countrywide.
Mortgage map data shows the practice is adding as much as Dh4,000 a month in interest payments on a Dh2 million mortgage.
“Some clients are still paying high interest rates due to old agreements prior to 2008,” said Tariq Qaqish, who manages a real estate equity fund at Al Mal Capital in Dubai. “But new investors are definitely paying cheaper interest rates due to a global low interest rate environment.”
High exit fees imposed by some lenders are also preventing many customers from taking advantage of cheaper deals as interbank borrowings tumble towards 1 per cent. The six-month Emirates Interbank Offered Rate, better known as Eibor, was just 1.05 per cent last week. It has fallen steadily over the past five years since peaking at 4.7 per cent in October 2008.
According to the price comparison website Souqalmal.com, local banks currently advertise flat interest rates for home loans of 1.65 to 5.04 per cent depending on the lender, fixed or variable rate, amount and term of the loan and particular development. But mortgage lenders charged as much as 10 per cent at the height of the boom in 2008.
The total value of mortgages held in the UAE fell 2.4 per cent to Dh156 billion in the first four months of this year – down 4.4 per cent since the end of 2010 – Central Bank data shows.
Residential mortgages will probably grow 10 per cent to 15 per cent annually in the next few years, Jaap Meijer, the Dubai-based director of equity research at Arqaam Capital told Bloomberg News this month. “That’s sustainable because the rates have come down so much” and interest of about 5 per cent annually is the norm now, he said.
Lenders typically charge fees when a mortgage balance is cleared either when the debt is paid off or a customer switches to a new lender. High exit fees and unsustainable loan-to-value ratios have deterred some borrowers from renewing their mortgages. Exit fees range between 1 and 5 per cent of the mortgage balance.
“As a developer, I would prefer the banks to be considerate towards pre-payment and entry fees,” said Abu Ali Malik Shroff, the chairman and managing director of the developer Sheffield Holdings.
Mortgage brokers say that consumers are increasingly seeking better value for money including lower interest rates, improved terms and conditions and exit fees.
Requirements for mortgage refinancing are being fuelled by substantial increases in property values across Dubai and Abu Dhabi. The second quarter of this year marked the fourth consecutive quarter of increases in residential property prices in Dubai, according to a research note from Standard Chartered.
“We believe confidence has returned to the market after a few tough years. The banks feel more confident and therefore are passing that on to borrowers by offering special two-year rates. After two years they will go to the prevailing rate,” said Chris Allen, a mortgage consultant at IP Global.
* With reporting by Andrew Scott, Sananda Sahoo and Hadeel Al Sayegh
Visit pecunia.me and try its new mortgage calculator to understand if you can save money by refinancing.