The 23 mortgage lenders in the UAE have been slow
to adjust to falling central bank discount rates, and profit margins on
home loans have never been higher. But the Commercial Bank of Dubai has
emerged as an unlikely consumer champion with loans from 5% against the
lowest general market rate of 7.5%.
In offering
UAE
mortgages from five per cent this well established and rather
conservative bank has thrown down a strong challenge to the rest of the
local home loan market which offers mortgages from 7.5% upwards. You
will need to have a spotless credit record to qualify for a CBD
mortgage, but its requirements are not that difficult for senior
expatriates.
The salary cut-off is Dhs15,000, and the credit assessment also
includes whatever other debts clients have, and the size of deposit.
Thomas Smith, Deputy GM and Head of Retail Banking told AME Info:
'We work on the six-month EIBOR interest rate plus a fixed margin of
2-5%, depending on the financial profile of the client.
'We are a bank so we have our own local depositor base. We pay out
less out to depositors if interest rates fall and can therefore pass
that advantage onto our mortgage holders in lower rates. So if EIBOR
falls, as it has recently, so will our mortgage rates.'
Mortgage lenders
It is more difficult for home loan companies
that have to issue mortgage-backed securities like Tamweel and Amlak
Finance. They do not have the same flexibility as deposit takers and
this is reflected in the higher cost of mortgage payments for
borrowers.
Commercial Bank of Dubai is also competitive in having no charges for early repayments unlike many other
UAE
home loan providers. Standard Chartered charges 4% of the loan amount
for early settlement. CBD also boasts a maximum mortgage arrangement
fee of Dhs10,000, which stays at this level on any loan above Dhs1m.
Smith admits that CBD is trying to catch up from behind, being late to
enter the market: 'What we saw is that the whole property market was
developing at enormous speed and that you need something special to
stand out. But taking the best mortgage clients is a low-risk and not a
high-risk strategy.'
Bargain mortgage
Expatriates looking at mortgage finance for a property purchase in the
UAE
will doubtless be very interested by this strategy which reduces the
cost of buying a home on a mortgage substantially over the life-time of
the loan.
But it is hard to imagine that the other lenders with their
currently fat profit margins will not decide to follow. Otherwise the
CBD could very quickly take their business away, and most certainly
siphon off the best quality risk into its home loan portfolio.
It needed only one bank to break ranks in the
UAE
home loan market to bring about a revolution in the local mortgage
market and a far better deal for the consumer. That has now happened.
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