UAE: Mortgage rate cut not to control rising defaults |
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A cut in mortgage rates will not help control rising defaults or prevent customer attrition, analysts said.
Most of the mortgage providers in the UAE have not followed Amlak FinanceAmlak Finance
's reduction in its base rate by one per cent for existing variable-rate mortgages. In spite of the reduction in the UAE Central BankUAE Central Bank's benchmark rate to one per cent last month, the benefit has not been passed on to mortgage customers."Defaults are likely to remain a big threat in the home finance sector for at least the first and second quarters of this year. Reducing rates is a smart move but the real estate sector has more complicated problems," said Wadah Al Taha, a senior financial analyst.
The problems of the real estate sector need more effective handling and multiple moves, Al Taha said. With home loan customers worried about falling property values, defaults have been rising.
A senior AmlakAmlak
executive said this week the lender expects an increase in mortgage defaults this year."The real estate sector is not suffering from high interest rates. The main factors in this case are different. It's a matter of high supply and low demand as of now and we are facing a correction period. What has added to the correction is lack of liquidity," said Al Taha.
A TamweelTamweel
executive said the lender, which is in the process of being merged with TamweelTamweel, has no plan to change rates at this time.Adrian Quince, Head of Mortgages at HSBC, said: "We are committed to reviewing pricing of our Flexi-Home Loan every quarter: on January 1, April 1, July 1 and October 1."
By Shveta Pathak
© Emirates Business 24/7 2009
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Amlak finance has increased its base rate by 2% back in december last year. So, their annocement of the reduction in the base rate by 1% is nothing but a smart move to make money in the pretext of global financial crisis. The ground realty is that they are now pushing their debt servicing burden on to the customer as they have borrowed money at the fix and at the higher rates during real estate booming era. It is a sheer financial mis-management which customers are now being held to pay for.
I think its time that these mortgage houses should acknowledge their responsibility as a main driver behind the revival of real estate market, as they have already learnt their lesson the hard way. [Report Abuse | Email to a Friend | Reply to this Comment]