Credit bureaus to help speed up processing of home loans |
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Increasing numbers of mortgage customers and would-be lenders are experiencing difficulties with the processing of their loan applications, Emirates Business has learned.
Walid Ahmed, a Lebanese general manager who has been renting a villa in the Springs area of Dubai for two years, applied for a loan with a leading UAE mortgage house to purchase the property. The initial promise of two days' processing has dragged on for almost five months.
"I almost gave up as it was taking a huge chunk of my time," he said. "Whenever I gave a certain document that the agent had asked me to provide they always asked for a new one, and obtaining the document would take days. It was a horrible cycle."
Anne Duncan, an American, was persuaded to apply for a mortgage by an advertisement that said pre-approval would be given in an hour. She called the toll-free number on the advert and was told an adviser would contact her within 24 hours. But she had to wait four days for the call and it was three weeks before she was given pre-approved status.
"I should have known it was just a marketing gimmick as it was too good to be true," she said.
Ahmed and Duncan are just a few of the many disillusioned mortgage customers in the UAE. Ali Hussein Al Rahma, CEO and Chairman of property consultants Eqarat.com, believes a proper mechanism should be put in place to speed up the application process.
"The processing of home finance in the UAE is a major challenge," he told Emirates Business. "The mechanism should be revisited. Financing should be easier and faster. The UAE has to learn from other markets such as the United Kingdom."
Chris Dommett, CEO of mortgage broker John Charcol Dubai, agrees. He says a host of factors such as the complexity of the UAE mortgage market, the absence of a credit bureau and the lack of trained and qualified staff make the process in Dubai slower than in other markets.
"Here you've got buy-to-let products, you've got interest-only products and you've also got the difference between the Islamic and conventional products, so there are a lot of products to choose from," Dommett said.
And although Emcredit the UAE's first credit bureau opened its doors in 2006 its procedures are not yet fully developed.
"In the absence of a [developed] credit bureau, which is one of the main tools that is used in the UK to assess credit, banks here have had to find surrogates in the form of income statements and put together the credit story for each applicant," he said.
Credit bureaus already exist in Kuwait, Bahrain and Saudi Arabia. And, with the number of lenders on the rise in the UAE, a system to track consumer debt is now desperately needed here, too.
Dommett said: "Dubai is in the process of bringing together a credit bureau. However, the issue has been talked about for almost 10 years. I remember from my banking years 10 years ago the Central Bank was asking all the banks to contribute to a central credit database, but it really didn't take off."
The Emcredit initiative is one of a series of steps being taken in Dubai and elsewhere in the UAE to establish credit information services. But so far none of the services offers comprehensive market coverage.
Emcredit will pool information supplied by bank members in addition to sharing public domain data and information collected from Dubai government departments. But the Central Bank is not involved in the project and its absence is expected to inhibit the collection of customer information from banking and other official sources and makes mandatory bank membership unlikely. As an information-sharing network the number of banks Emcredit can encourage to join is crucial, as is the members' ability to supply updated data
"The UAE needs strong legislation and regulation to force the banks and credit companies to provide data for a central bureau to be able to build a database that is on a par with those of the US and the UK," said Dommett. "In addition the lack of skilled and experienced people was slowing down mortgage processing. The banks are facing a real challenge because of the volume of demand and they are just not able to hire good trained staff. That is why they constantly poach from one another."
Home finance providers are reluctant to accept that they have failed to live up to their promises.
AmlakAmlak
said its one-hour approval service had been quite successful since its launch at the beginning of the year. "Our internal research and development team thoroughly tested the service three months prior to its launch in order to ensure the processes and procedures were in place," Arif Alharmi, CEO of Amlak FinanceAmlak Finance, said.He said AmlakAmlak
had approved more than 90 per cent of applicants under the one-hour process. "Our service is based on a credit scoring system and thereafter the customer is required to furnish supporting documents that need to match their responses."
The one-hour promise starts from the point the customer walks in to the time the approval letter is issued.
Alharmi said the system worked well with salaried applicants. Self-employed customers were required to furnish additional documentation that could take longer to verify.
TamweelTamweel
has a service that promises approval of an application for home finance within 48 hours of its receipt with full supporting documents. Nabil Abou Alwan, TamweelTamweel's Head of Marketing and Product Development, said the guarantee was secured by giving back Dh1,000 for each day of any delay up to a maximum of the arrangement fee paid by the customer for the application."This service is neither a promotion nor marketing gimmick," Alwan said.
"It is a product-based service that constitutes the benchmark of how we should work and sets an industry example. We tested this product for over six months internally before going to the market in January and have every intention of taking it to the next level."
Alwan said TamweelTamweel
had managed to achieve a 98 per cent success rate in processing applications on time since the launch of the service. The 48-hour approval service was an opt-in product that customers could choose at the time of applying at no additional cost. "If the customer opts for this product he should insure that all supporting documents required are attached to the application. Once this requirement is met then the 48-hour approval service applies to the application."
Alwan said the service was not available for all TamweelTamweel
products. Among those excluded were commercial services and loans for any type of residential property that required evaluation by a third party as TamweelTamweel could not control how long the valuer took to report back. The speed of approval was not related to credit bureau availability and giving approval for a mortgage was different from processing personal loans.
"Credit bureaus will help in the assessment process by giving an added security to the finance house. However, each lender would still need to do its own credit check and credit assessment of the property in question and also on the borrower."
Alwan admitted that slow service in Dubai was "mainly due to the fact the market was nascent" and that "there was very little experience in property finance in the market".
But he added: "In recent times the service has improved to a great degree and a lot of providers have improved their service delivery to acceptable levels. At TamweelTamweel
, we have taken the service level to the next level by offering the 48-hour approval service. This kind of service is not available even in many of the advanced economies of the world."Alharmi agreed, saying there were a number of factors behind the slow processing. "The most important is the fact that the mortgage industry in the UAE is still in the developing stage," he said. "AmlakAmlak
was the first home finance company to be launched in 2000 and it was only in 2004 other companies moved into this field. We are actually looking at an industry that is a few years old."There is a major opportunity for growth. With the rapid growth of the properties sector staff working in the mortgage side are doing their best to respond efficiently and professionally to customers' queries."
What customers can do is to become more demanding, said Dommett. "As the market becomes more mature customers will become more aware of who delivers and who does not," he added. "Banks, mortgage houses and brokers will be held more to account for the promises they make."
Currently, however, most customers cannot demand much. Analysts say people will borrow at pretty much any rate and will wait for approval at any length of time. There is a limited number of properties available as the supply of real estate is restricted by construction delays and falls well short of demand.
By Karen Remo-Listama
© Emirates Business 24/7 2008
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As a professional analyst and advisor I completely concur with this article. Note that my experience in dealing with the management of the credit companies is that there is no lack of will to improve things from the lenders side. They have fallen victims of their success and inexperience as you noted. Of couse the last loan I took the "free" approval turned out to be a one hour... pre-approval. The Approval itself did cost me AED 27,000!
I would like to point out some practices that worry me a bit.
First of all we have an institutionRERA which regultes the market and the development activity by registering developers, implementing trust accounts etc...So why are lenders still limiting mortgages to the ones on theirs so called "appoved developper's list"? In Dubai it doesen't matter that you have a perfect record going back years with you retail bank, even if you clearly have the income to cover the mortgage your bank will not finance you if the development you are buying into is not on their list.
Secondly, when you take a loan, contractually, certain lenders such as Amlak actually compel you to hand over a number of signed cheques with not date and no amount on them. This means that at any time over then next years they can just write down an amount a deposit the cheque. Officially this practice is there to give the lender recourse if during the course of the mortage life you where to default on your payment. Well if there was a default, certainly the cheque would also bounce, wouldn't it? The point of law that these lenders are basing this practice on is the one that states that in the UAE if you default on a cheque your are subject to penal pusuits and jail time which I guess they believe is a deterent. Not very first world practice if you ask me. [Report Abuse | Email to a Friend | Reply to this Comment]
If you want to buy a residential freehold villa or apartment worth 10s of millions - ready in 3-4 years (maybe) from an "approved" developer - the banks and mortgage companies will throw money at you. If however you are a real investor or company and want to buy a COMPLETED commercial office, with tenants/income secured for 5+ years - NO ONE WILL LEND....and we al wonder why there is a speculative bubble forming in this market. Got 10-20% and want to flip property -WELCOME TO DUBAI. Want to invest in income producing commercial property with leverage - NOT POSSIBLE [Report Abuse | Email to a Friend | Reply to this Comment]