Tim, I have a mortgage with an international bank both here and in the United Kingdom. My sterling mortgage repayments have dramatically reduced but the same bank with my dirham loan is actually increasing my interest rate. I thought the global movement on interest rates was reducing. Why is my dirham one bucking that trend? – Abraham
As you rightly identify, the interest rates of major currencies worldwide are indeed falling in line with creating a stimulus to the economy and to allow the confidence to return to the housing markets and business. Low-interest rates allow businesses to recommence borrowing and make property purchase more achievable.
Most noteworthy was Gordon Brown's dramatic reduction of UK interest rates with the caveat that lenders pass the money on, get it back into the economy. Similar action has been taken across the pond from the UK and a revival in the US housing market is a key indicator of the recovery of the economy overall. Since interests rates on the dollar have fallen too, it only stands to reason that the pegged dirham should follow.
However, you and other mortgagees in the UAE are paying for banks having to shore up their financial positions. It would be fair to say many banks here lent money against projects that may not have been given the full due diligence and this lack of corporate governance left banks financially exposed. Since local banks are not keen to lend further or rather the terms are so difficult to fulfill, they are turning their backs on existing customers and looking to milk them even more.
In essence, Abraham, until the liquidity and confidence returns to the [UAE] market, expect your lender to penalise you further. We have seen many homeowners who could afford their mortgage at outset but are now finding it difficult to maintain increased payments. Coupled with the spiralling inflationary pressures and weak employment confidence, the problem is only compounded. Remember too, if the interest rate increases by one per cent in real terms it is probably in the region of a 17 per cent hike on your budget. You would be wise to see if your mortgage can be re-brokered and also challenge your bank. They may not do anything about it but it might make you feel better.
There needs to be a concerted effort by authorities to impose upon the local lenders to stop treating customers in this manner. Let's face it; it was banks that got us into the predicament in which we find ourselves since they took over the role of issuing monetary policy when really our governmental bodies should be doing so.
Tim Searle is CEO of Globaleye, a leader in financial services for the Middle East with over 4,000 clients. Send your queries to: firstname.lastname@example.org