Banks battle for the title of the cheapest home loan in the country
The battle for attracting the most credit-worthy mortgage borrower has begun in earnest in the UAE, with more banks joining the price war and lowering interest rates.
The latest to offer "the lowest interest rate in the UAE" is the Sharjah-based United Arab Bank, which is hoping to lure residents with its invitation 4.99 per cent interest rate on mortgages and a high loan-to-value (LTV) ratio of up to 85 per cent.
"With an interest rate of 4.99 per cent, this is a welcome addition to the [UAE's] mortgage landscape for customers who are looking for a sensible alternative to bring down their monthly commitments," the bank said in an emailed statement.
The country's mortgage market remained depressed in the past couple of years with borrowers and lenders both adopting a wait-and-watch approach.
While banks have been understandably cautious in extending mortgages owing to a dramatic decline in real estate valuations and the rate of defaults, borrowers with sound financials have been waiting for prices to bottom out before taking the plunge.
This has resulted in a rather lacklustre market over the past few months, with real estate mortgage loans by UAE banks stagnating at Dh160b in the 10 months between June 2010 and March 2011 (latest available data from UAE Central bank). This is in sharp contrast to the 122 per cent surge
witnessed in 2008 over 2007 and a close to 13 per cent jump next year.
"We strongly believe this [UAB's offer] will bring renewed impetus to the mortgage market and gives our target customers an opportunity to own their own home with the most competitive interest rate in the market," said Paul Trowbridge, UAB's chief executive.
"Despite being a recent entrant to the residential mortgage market, UAB has quickly emerged as a prominent player," added Tom Smith, UAB's Executive Vice President, Group Head- Retail Banking.
But while UAB may be the latest entrant in the country's mortgage market, it certainly isn't the only one brandishing the lowest interest rate carrot. After re-launching its home finance solutions in November last year, Dubai-based Islamic lender Tamweel too has become aggressive in
scouting for new mortgage borrowers, offering a 4.99 per cent interest rate to borrowers wishing to switch to it from other market players.
Abu Dhabi Finance is offering interest rates of 5.75 per cent while international banks like HSBC and Standard Chartered are both offering interest rates starting 5.49 per cent on home loans, with the latter offering tenors as high 30 years and loan amounts of up to Dh18m.
HSBC, on the other hand, is enticing customers with an 80 per cent LTV ratio and a repayment period of up to 25 years.
UAE Central Bank Governor had late last month urged UAE lenders to lower interest rates as he said the banks were awash with liquidity. "Those borrowers, especially merchants and businessmen, are complaining about high interest margins on their banking facilities," Sultan Nasser Al Suweidi told heads of UAE banks at a scheduled meeting between him and the heads of UAE banks.
"The key question is that banks change terms of their banking facilities in agreements ... and of course, as you know that borrowing is the basis for growth and prosperity of the banking business, therefore, I would urge you to reduce interest rate margins on loans," he told bankers.
UAE Interbank Offered Rate (Eibor) has been falling gradually as liquidity is increasing, with three-month Eibor now at a seven-year low.
The three-month benchmark, based on quotes from dozen of banks, is fixed at 1.61625 per cent on Sunday June 19, the lowest level since April 2004.
© Emirates 24|7 2011
