The crisis that gripped the UAE’s property markets five years ago is relaxing its hold rapidly, with values climbing so sharply that some observers are warning of a new bubble.
At the same time, though, the crisis is still claiming victims. As The National reported yesterday, many homeowners who took out mortgages during the boom are stuck paying interest rates far higher than new customers can get. The difference can cost a borrower nearly Dh50,000 a year, according to data from the innovative “mortgage map” launched this year by Pecunia.me and The National.
Since banks can themselves now borrow quite cheaply at prevailing low interbank rates, this practice seems to many mortgage customers to be downright predatory. And it is particularly galling, no doubt, for those who took out variable-rate mortgages. Exit fees, as much as five per cent of the outstanding balance, are having the effect of freezing some borrowers into mortgages at rates far higher than current conditions justify.
Banks are doing themselves more harm than good with this grasping, short-sighted policy. To be sure, borrowers signed the contracts, perhaps without questioning exit penalties that now seem excessive. But widespread resentment of the banks leads straight to mistrust of them, which is in the long run not healthy for any economy or society.
There is, however, hope of improvement. The nationwide Al Etihad Credit Bureau, scheduled to be fully operational by 2015, will speed the country towards more openness in the whole domain of borrowing and lending. Once banks begin to share information with each other, we can hope, the public will begin to clamour for more and better information about bank products, including ways to comparison-shop for mortgages. As always, competition will serve consumers well. (Already, Pecunia.me’s mortgage map has started to reveal the realities of banks’ practices and rates.)
Until daylight illuminates all corners of the mortgage market, however, we have two bits of advice: if you’re locked into a bad rate, do the maths on that high exit fee. Over a long mortgage, even a bloated one-time escape fee may cost you much less than staying with a high rate. And if you are shopping for a mortgage, read the fine print, challenge the exit fee and shop around.
A sound economy needs a healthy property sector, which in turn requires an efficient, competitive mortgage market. In the long run, greater openness will serve everyone well.