Mortgage rates up, loan-to-value falls |
|
Text Size 
Mortgage rates in the UAE are likely to rise further due to the liquidity strain, while the loan-to-value (LTVs) ratio is expected to further decline, a report said.
HSBC's UAE Real Estate Sector Update said mortgage rates are likely to come under upward pressure given the current liquidity strain.
ADCB had recently revised its mortgage rates upwards by 50bp, while Tamweel plans to increase its rates to 8.4 per cent from 7.4 per cent. Currently, the interest rates in the UAE are already higher than the United States. The UAE's rates average at 7.5 to 8 per cent, regardless of the tenor of the mortgage loan. That is 2.4 per cent higher compared to the United States's 5.6 per cent rate for a 30-year mortgage and about 5.2 per cent for a 15-year loan.
"Liquidity in the system is now coming under strain. This is clearly demonstrated by the increasing spread between Eibor and Libor, with the domestic cost of borrowing on an upswing," the report said.
"While the UAE Central Bank recently announced a liquidity injection, the terms on which banks could tap this facility were rather tough, as the CBU weighs inflationary pressure against growth," it added.
Mohsin S Khan, the International Monetary Fund's Director for the Middle East and Central Asia Department, explained that the central bank's injected facilities were not utilised because they are also very expensive and availing such facility signals the weakness of a bank.
"And banks do not want to send that signal," he said.
In light of heightened risk perception surrounding the real estate sector, banks are also likely to lower mortgage LTVs, HSBC said.
The report, obtained by Emirates Business, said early evidence suggests that this has already begun.
HSBC Home Finance recently reduced its mortgage LTVs from 85 per cent to 60 per cent on apartments and 70 per cent on villas.
Tamweel and Amlak also reduced their LTVs from 90 per cent to 75 per cent and 65 per cent, respectively.
Additionally, anecdotal evidence suggests that the spread between mortgage providers' property valuations and actual property prices has widened significantly. "This means that LTPs (loan to price) are increasingly falling below LTVs, putting further pressure on demand," it said.
The recent stock market decline has not helped, as it highlighted the region's vulnerability to global trends - in equity, debt and property.
The fall-out from the decline in the stock market is wealth destruction and risk aversion, which add to liquidity constraints, hitting demand for property.
"All this, in combination with the weeding-out of speculatively driven demand and incessant corporate scandals, is bound, in our opinion, to lead to some weakness in property prices," the report added.
By Karen Remo-Listama
© Emirates Business 24/7 2008
Community Comments (0) - 
Comment on this article 
Comment on this article
The opinions of the authors expressed herein do not necessarily state or reflect Zawya. Read our Comment Policy.
Loading ...
Zawya Comment Policy:
-
Zawya encourages you to add a comment to this discussion. You agree that when you add content to this discussion your comments will not:
1.1 Contain any material which is libelous or defamatory of any person, is obscene, offensive, hateful or inflammatory or causes damage to the reputation of any person or organisation.
1.2 Promote sexually explicit material, violence, discrimination based on race, sex, religion, nationality, disability, sexual orientation or age or any illegal activity.
1.3 Be made in breach of any legal duty owed to a third party, such as a contractual duty or a duty of confidence.
1.4 Be threatening, abuse or invade another's privacy, or cause annoyance, inconvenience or needless anxiety.
1.5 Be used to impersonate any person, to misrepresent your identity or affiliation with any person, or be likely to deceive any person.
1.6 Give the impression that they represent Zawya.
1.7 Advocate, promote or assist any unlawful act such as (by way of example only) copyright infringement or computer misuse. - The content posted on www.zawya.com is created by members of the public. The views expressed are theirs and unless specifically stated are not those of Zawya. Zawya reserves the right to review all comments prior to posting and edit or delete any contribution, but Zawya is not responsible for and can not be held liable for any content posted by members of the public on www.zawya.com.
- Zawya is not responsible for the availability or content of any third party sites that are accessible through www.zawya.com. Any links to third party websites from www.zawya.com do not amount to any endorsement of that site by Zawya and any use of that site by you is at your own risk.
- By submitting your comment, you hereby give Zawya the right, but not the obligation, to post, air, edit, exhibit, telecast, webcast, re-use, publish, reproduce, use, license, print, distribute or otherwise use your comments worldwide, in perpetuity.
Community Buzz
Stories
Companies
Most viewed companies by Community in the last 24 hrs
| Company Name | Country | Industry |
| Consolidated Contractors Company | Overseas | Construction and Design |
| Saudi Binladin Group | Saudi Arabia | Construction and Design |
| Abu Dhabi Investment Council | UAE | Investment Firms and Funds |
| Saudi Electricity Company | Saudi Arabia | Electric Utilities |
| Ras Girtas Power Company | Qatar | Electric Utilities |
| Emirates Aluminium Company | UAE | Metal Production |
| Al Azizia Panda United Company | Saudi Arabia | General Retailers |
| Emirates Telecommunications Corporation | UAE | Telecommunications Services |
| Saudi Telecom | Saudi Arabia | Telecommunications Services |
| Mubadala Development Company | UAE | Investment Firms and Funds |
Projects
Most viewed projects by Community in the last 24 hrs
| Project Name | Country | Sector |
| Ras Girtas Power Company - Ras Girtas IWPP | Qatar | Power and Water |
| IGD - Gasco - Habshan 5 Gas Processing Plant | UAE | Oil and Gas |
| SATORP - Jubail Refinery and Petrochemical Complex | Saudi Arabia | Oil and Gas |
| Emirates Aluminium (EMAL) - Smelter Complex | UAE | Industry |
| Takreer - Ruwais Refinery Expansion | UAE | Oil and Gas |
| Qatar Foundation - Sidra Medical and Research Center | Qatar | Real Estate |
| Aramco/Dow Chemical - Ras Tanura Integrated Refinery and Petrochemicals Complex | Saudi Arabia | Oil and Gas |
| Abu Dhabi Ports Company - Khalifa Port and Industrial Zone (KPIZ) | UAE | Infrastructure |
| SATORP- Jubail Refinery and Petrochemical Complex - Conversion Unit and Sulphur Package (Part 2) | Saudi Arabia | Oil and Gas |
| Dubai RTA - Dubai Metro - Purple Line | UAE | Infrastructure |