Mortgage rates stabilise at 7-8%

Further decline unlikely. LTV stands at 75-80% but applies to completed properties and 'good' customers. (EB FILE)

Mortgage rates have stabilised at seven to eight per cent in the UAE, the same levels as they were in 2007 and 2008.

This is in stark contrast to the nine to 10 per cent rates in the first quarter of 2009 – a critical level that analysts said could have resulted in defaults.

The current rates are unlikely to go down further as the cost of funding remains high due to lack of centralised liquidity pool, credit bureau and regulatory framework, lenders told Emirates Business.

"A lot of banks have introductory offers, but the market rate is 7.25 to 7.5 per cent," said Damian Hitchen, Managing Director of independent mortgage advisor Gulf Lenders Network.

Depending on the loan-to-value (LTV) ratio, interest could range from seven to 8.75 per cent, but the average is seven to 7.5 per cent, said Sundar Parthasarathy, ADCB SVP and Head of Consumer Assets, Consumer Banking Group. "Banks used to apply a one-size-fits-all approach. Now the margins are based on LTV. The rate for a customer who puts in 50 per cent will be much lucrative than the one who puts in 20 per cent," he said.

LTV currently stands at 75 to 80 per cent, but this applies to completed properties and "good" customers only. "Even if we have LTV for non-completed properties, people will not go for it," Parthasarathy said.

Despite the drop, interest rates remains very high in the UAE, which analysts say are 2.4 per cent higher compared to the United States' 5.6 per cent rate for a 30-year mortgage and about 5.2 per cent for a 15-year loan.

"I can't see the interest rates coming down substantially until there is progress on repossession and funding mechanisms," Hitchen said. Parthasarathy added: "I doubt the interest rates would come down because it all depends on the cost of funds. Today the Eibor doesn't necessarily depict the cost of funds."


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