Even with borrowing costs decreasing in the UAE, banks are charging old mortgage customers about AED 50,000 more per year than new customers. A local data company that keeps track of mortgage prices in the country claims that homeowners who received floating loans in 2008 are paying more than 7% on those loans. The data includes rates from about 100 countrywide homeowners.

Mortgages taken out this year show rates at almost 4.5%, or 2.5% lower than the 2008 home loan rate. This translates to about an additional AED 4,000 per month in interest payments alone for an AED 2 million mortgage. This begs the question, why don’t mortgage holders simply refinance? Unfortunately, some of these banking institutions charge a high exit fee, which forces the lender to stay with their current deal even though many cheaper options exist. Tariq Qadish, manager of the real estate equity fund for Al Mal Capital, confirms this by saying, “Some clients are still paying high interest rates due to old agreements prior to 2008, but new investors are definitely paying cheaper interest rates due to a global low interest rate environment.”

Mortgages held in the UAE fell in the first quarter of the 2013 financial year by 2.4% to AED 156 billion. Since 2010, the rate has fallen 4.4%, according to data by the UAE Central Bank. The short-term outlook however looks very promising as Jaap Meijer, director of equity research firm Arqaam Capital notes, “Residential mortgages will probably grow 10 per cent to 15 per cent annually in the next few years. That’s sustainable because the rates have come down so much and interest of about 5 per cent annually is the norm now.”

With the increase in property values in Dubai and Abu Dhabi recently, mortgage refinancing has become a hot topic in banking circles. Chris Allen, mortgage consultant at IP Global explains, “We believe confidence has returned to the market after a few tough years. The banks feel more confident and therefore are passing that on to borrowers by offering special two-year rates.”  Chairman of Sheffield Holdings, Abu Ali Malik Shroff, weighs in on what real estate developers are anxious to see, “As a developer, I would prefer the banks to be considerate towards pre-payment and entry fees.”

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