RATES SLASHED: The US Fed rate has been cut seven times since September 2007. (Getty Images)

NO REPLY: HSBC’s refusal to lower its lending rates has provoked fury from customers who have been waiting for a reduction in their repayments.

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Banks hoard Fed cuts

The US Federal Reserve has lowered its interest rates seven times since September 18, 2007, bringing down the cost of borrowing to just 2%.

The successive rate cuts should have sent mortgage rates tumbling in the UAE as banks benefited from cheaper funding costs. Instead banks including HSBC, Lloyds TSB and Barclays have resisted lowering their rates to below the range of 7.1% to 8.5%.
At his office in Dubai Media City, business analyst Nasir Aijaz produces a binder full of correspondence with HSBC Bank Middle East, a unit of Europe's biggest bank by market value.

His emails relate to why the bank has failed to pass on successive Fed rate cuts on the variable rate mortgage he took out - even as its own borrowing costs have been slashed.

"When I took out my mortgage, one of the best rates available was with HSBC, which was offering 7.25% if I made a down payment of 25%.

My understanding was that if the Fed rate dropped in the future, I would get a better interest rate," he says, citing the terms and conditions of the mortgage published on HSBC's own website.

It states that the bank may change its mortgage rate "based on movements in the USA Fed Funds Rate".

Despite all of his letters to the bank Aijaz has failed to get his interest rate lowered. He has attempted to contact both the UAE Central Bank and the Ministry of Economy's consumer protection unit with his grievances, but has yet to receive a response.

International banks have been attracted to the UAE mortgage market since 2002 when the introduction of foreign ownership rights in Dubai triggered a six-year property boom.

Demand for new properties could top 500,000 units by 2012 with a total transaction value of more than US$190bn, according to research from EFG-Hermes.

The US has been slashing interest rates in a bid to stave off recession in the wake of the subprime mortgage crisis which has led to credit losses and write-downs totaling about US$383bn since last year among the world's largest banks.

Gulf economies including the UAE and Qatar have been forced to cut their benchmark interest rates as the Fed has lowered its own rates, in order to maintain their currency pegs with the ailing US dollar.

Most international banks offering mortgages in the UAE advertise rates of between 7.1% and 8.5% but often require substantial deposits of up to 25% for customers to benefit from the lowest rates available.

This compares to mortgage rates averaging around 5.5% in the US, 2.4% in Japan, and 2.5% in Hong Kong according to financial website www.economywatch.com.

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