Lenders ramp up interest rates on home loans

RATES RISE: Lenders in the UAE have increased rates on variable mortgages. (Getty Images)

Lenders across the UAE have ramped up the interest rates on home loans as the cost of borrowing soars on local debt markets.

Some companies are now charging customers eight to nine percent interest on variable rate mortgages, hitting low wage earners in the UAE who are already struggling to get on the property ladder as banks tighten their lending criteria.

Last week HSBC raised the monthly interest rate on a 70 percent variable mortgage - a loan worth 70 per cent of a property’s value - from 7.5 percent to 9.5 percent.

Rates for a 60 percent mortgage have gone up from 6.25 percent to 8.5 percent in the last week, the bank said.

Amlak, the biggest mortgage lender in the Middle East by market value, who yesterday said it had temporarily stopped granting new home loans, has also raised its variable rate from 7.75 percent to 9.75 percent in the last month.

Another big lender in the region, Barclays, raised its rates recently from 7.45 percent to 8.5 percent and Lloyds TSB from 7.99 percent to 8.5 percent.

Sherif Abdul Khalek, institutional accounts manager at Beltone Financial told Arabian Business: “The cost of borrowing [on the debt markets] to finance these loans is getting higher. Debt has become more expensive so they’ve had to raise interest rates.”

“With the uncertainty of the markets, we could see more changes to lending policies,” he added.

Lenders in the region are being forced to pass on the cost of borrowing to homeowners because banks are not lending to one another due to the regional liquidity crisis.

Mortgage rates are based on the interbank rate or EIBOR - the rate at which banks borrow from one another on the credit markets.

The EIBOR (Emirates Interbank Offer Rate) for one month is currently 4.30 percent. In September, the rate hovered around the 3.5 percent mark.

News that banks are hiking rates comes as lenders are also making it harder for people to secure mortgages by slashing loan to value ratios and raising the minimum salary someone must earn to qualify for a loan.

Last week, Arabian Business revealed HSBC had doubled the minimum salary someone must earn to qualify for a mortgage from 10,000 dirhams to 20,000 dirhams.

Lloyds are currently not lending to customers wanting to purchase an apartment in the UAE.

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