A group of about 40 mortgage holders in Dubai are vowing to sue Mashreqbank over a change in interest-rate calculations.
Borrowers vow lawsuit on rate shift
A group of about 40 mortgage holders in Dubai are vowing to sue Mashreqbank over a change in interest-rate calculations that some of them say will raise their monthly payments by 30 per cent. The dispute, a fresh sign of how trouble in the banking system is straining customer relations, began when Mashreq sent a letter to mortgage customers in November saying it would abandon the Emirates interbank offered rate (Eibor) as the basis for interest on variable-rate mortgages, replacing it with an internally set base rate.
The bank blamed falling property values and the fact that Eibor no longer reflected their funding costs for the change, which followed interest rate adjustments at a number of other banks last year. "Most retail banks in the UAE have already moved off Eibor as a reference rate for mortgages," Mashreq said in a statement sent to The National. "Mashreq is responding to extraordinary financial conditions beyond its control and is not in any way seeking to take advantage of its customers."
About a third of mortgage customers would see their payments increase because of the change, said Douglas Beckett, the head of retail banking at Mashreq. The rest would pay the same amount or slightly less, Mr Beckett said. Mashreq has waived refinancing fees until the end of March so customers can take their business elsewhere if they choose. But the disgruntled customers argue that their contracts do not allow the change, and have threatened to take their case to the courts if Mashreq does not back down. Many of them have said they will stop transferring their salaries to Mashreq accounts until the dispute is resolved.
They add that Mashreq's refinancing fee waiver is an "empty gesture" because few banks would refinance a mortgage worth less than the value of the property it was used to purchase, a state many mortgage holders in Dubai find themselves in after large property price declines last year. Mashreq said in a statement that it recognised some customers may not be able to refinance in the short term. "We felt we had honoured our part of this agreement and to have the bank turn around and not honour their part of the agreement is strange," one Mashreq mortgage customer said.
Iain Jones, a lawyer in Dubai who is leading the charge against Mashreq, said he was confident of the customers' success. "Everyone in this group is adamant that they're not going to get away with it," Mr Jones said. It is unclear how a successful legal challenge to Mashreq's change would affect similar changes other banks have made. Mashreq's new interest rate calculation went into effect on Friday.