The vast majority of mortgage transactions are final handover payments for completed developments
The vast majority of mortgage transactions in Dubai are new purchases by end-users and final handover payments for completed developments. Although property prices were falling last year, most buyers decided to hold off. With the market bottoming out, a lot of those buyers have returned to the market now and bought property.
The majority of client enquiries are for handover payments to developers who had launched creative payment schemes to lure buyers from completed to off-plan stock. “Major disbursements are falling during handover and banks are generous enough to consider such cases for review and facilitate funding upon receiving the completion certificate and handover letter from the developer,” says Dhiren Gupta, managing director, 4C Mortgage Consultancy.
“H1 2018 mortgage transactions were lower than the corresponding period in 2017. Property prices are lower, but rates are higher which has dissuaded some buyers, while others are holding off thinking prices may drop further,” comments Lukman Hajje, CCO of Propertyfinder.
There has been a rise in the number of equity release inquiries in Q2. “This is primarily due to current market conditions still remaining in favour of buyers. Property prices have more or less bottomed out and buyers are taking advantage of this by releasing equity in their homes to either upsize or purchase other properties for investment,” observes Paul Kelly, operations director at Allsopp & Allsopp.
The average mortgage size in Dubai in the current market is Dh1.5 million. If it’s a first home purchase, the loan amount is restricted to 75 per cent of the market price if the property is priced less than Dh5 million.
“Most end-users opt for one to two-bedroom apartments which are available in the range of Dh1.1 million to Dh1.8 million in prominent areas; even townhouses are available from Dh1.5 million to Dh2.2 million,” informs Gupta.
“We have seen mortgage sizes dip this year and a larger percentage of loans under the Dh1 million market,” says Hajje.
With the UAE Central Bank hiking early settlement charges on home loans, the mortgage refinance market has turned stagnant. In June, the Central Bank increased the fee from one per cent of the outstanding home loan amount, not exceeding Dh10,000, to a maximum of three per cent of the loan amount.
“Borrowers seeking to refinance have always faced new valuation fees, DLD de-registration and re-registration charges, etc. Prior to the June fee amendments, the number of clients refinancing their mortgage was quite low as banks were always open to negotiate a competitive market rate following the expiry of the borrower’s fixed rate period. But now, faced with an additional potential three per cent exit fee, refinancing is usually not viable,” says Hajje.
With the new exit fee, the movement of existing liability to another bank has become restricted. “However, as per Central Bank guidelines, a few banks have given two months’ notice to exit. Hence, we can witness a few buyout transactions during this period, but buyers are sceptical about taking a decision on fixed or variable pricing as fixed rate pricing offered by most banks is limited to two to three years and then the variable pricing is applied which is usually higher. A few banks have a variable product from the start at a lower base rate margin linked with Eibor,” observes Gupta.
Although the majority of UAE mortgage lenders have now implemented the changes in their lending policy, a few select lenders are yet to follow suit. “A number of financial institutions gradually reduce the percentage cap over a period of time as a unique selling point to not only add an element of consumer fairness back into the equation but more importantly, to have an edge over other lenders when it comes to remaining competitive in the market,” contends Kelly.
With increases in interest rates expected to continue for the next 18 to 24 months, customers are favouring fixed rates to give themselves the stability, security and peace of mind in what is currently considered a volatile economy due to rising interest rates in the US and the dollar-pegged dirham.
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