UAE central bank sets early exit fee limit for mortgages

The Central Bank of the UAE directed local banks to reduce the early settlement fee on mortgages to a maximum of 1 per cent or Dh10,000, whichever is less, to those borrowers who want to exit their mortgages early.
The apex bank said in a circular that borrowers who had already paid 3 per cent settlement fee can get the refund from their banks within 30 days.
The early settlement fee was set at 3 per cent in June 2018.
"Early settlement or partial settlement fee for applying to home loans has been reverted to maximum one per cent of the outstanding balance or Dh10,000, whichever is less. Banks and finance companies that arbitrarily changed the stated terms of the fees in existing customer agreements are required to respect the original terms of the agreement and refund all overcharges for all customers based on their original fee within 30 days of this notice," read the circular.
Anurag Chaturvedi, managing partner, Chartered House Tax Consultancy, said all banks or finance companies - who charged excess fees post issuance 2011 regulations - have been notified to refund all excess fees and charges within 30 days to customer.
Thanks to a consistent decline in interest rates, mortgage rates have also been going down in the UAE in line with a decline in US Federal Reserve rates. This move will encourage borrowers to switch their mortgage to lenders offering better interest rates and result in an increase in buyout and re-mortgaging activity.
Chris Schutrups, managing director at Mortgage Finder, said the news opens up opportunities to find a better deal and save money. "The recent interest rate cuts that we have seen are pushing banks to be more competitive with their products. We have seen a decrease in mortgage rates since the beginning of the year. All of this is great news for those borrowers who were stuck with mortgage products that did not reflect the changing market."
Bilal Amanullah Moti, managing partner of Windmills Valuation Services, said the amendment will greatly facilitate the existing mortgage borrowers with flexibility in loan liquidating/transfer decision.
"The flexibility will also encourage the new mortgage-based home purchases in the UAE, and improve the real estate market sentiments overall," he said.
Quoting Dubai Land Department figures, the central bank's 2018 report said that investment in real estate with a value of deals of less than Dh10 million in Dubai stood at Dh45.6 billion, of which Dh38.5billion or 84.4 per cent were paid cash and Dh7.1billion or 15.6 per cent made through mortgage. Compared to 2017. It said cash purchases declined by 36.6 per cent, from Dh60.7 billion, while mortgage purchases dropped by 17.6 per cent from Dh8.7billion. The fall in the amount of all investment transactions was at 34.2 per cent in 2018.
The decline is in line with fall in property prices. While apartment sales prices in the first half of 2019 are 11.7 per cent cheaper than they were two years ago and dropped 3.9 per cent compared to second half 2018. While villa prices have become 12.1 per cent cheaper than they were in 2017, according to 'Property Finder Trends' report, released in August.
- waheedabbas@khaleejtimes.com