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17 April 2024

Mortgage rate cut not to control rising defaults

By Shveta Pathak

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 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 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 Amlak 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 Tamweel executive said the lender, which is in the process of being merged with Tamweel, 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."