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Thu 20 Nov 2008 02:51 PM

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Lenders ramp up interest rates on home loans

Banks in the UAE increase mortgage rates by as much as 2.5% as cost of borrowing rises.

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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Gareth 10 years ago

Yet again during a crisis the banks are trying to make more money. To stimulate what is become a flagging housing market the rates should be slashed. Also consider the GBP is now worth some 28% less against the dollar (thus dirham). Dubai and Abu Dhabi will never sell properties to the once expected droves which where banging on the door to live here. I believe flight bookings are down as is hotel bookings for next year. The UAE should try and tempt people here, by making it attractive not the exact opposite. This is the ideal time.

Waleed 10 years ago

I am no expert, but what little I know states that under the current circumstabces, interest rates should be lowered, not raised to encourage more lending. If the common sense used by lenders makes no sense, should I get on the next train out of dodge?

Paul King 10 years ago

The fantasy is over! The encore has finished and it's time everyone woke up and faced reality. Property in this climate is and always will be a consummerable. It wears out faster than a modern car and we know how fast they lose value.

AL Ghaf 10 years ago

I used to have a mortgage with an Islamic lender in Dubai. They hiked the interest rate twice within 2 years and never informed me, it seemed that interest rates were a dirty little secret at that institution and they neve liked mentioning them. On taking the mortgage they had omitted to tell me that after cashing the first 48 installment cheques, they would calculate the differnce in the interest rates and apply it. So each month I thought I was paying off my home, but after 2 years regular payments I ended up owing MORE than I borrowed. I almost dropped my ice cream when I found that out. And the kicker? They cahrged AED1000 to get a letter telling me how much more I now owed. Never again.

JTGardner 10 years ago

People, get smart....the banks CANNOT lower their rates to stimulate borrowing, even if they wanted to they do not have the resources to do so. Also, contrary to what most would have you believe Dubai is not different and does not operate in a vaccum. Markets are integrated globally and although many said the credit crisis would not hit here, they couldn't be more mistaken. There will be a load more belt tightening before things ease.

Chris J 10 years ago

It is interesting that when the US rates were going up, we were told by the banks that our rates in the UAE had to follow the US. Suddenly, they are quoting EIBOR and LIBOR for justifying the increase when the US market, which we are pegged to has rapidly declining rates. When will the banks in this country finally start to be honest with consumers?

Susan Valerian 10 years ago

All over, they are lowering interest rates. If they increase rates here and try to fleece those who trusted in them, it's a good reason why everyone else who plans to invest should stay away from this market.