One-month deadline given.
The UAE Central Bank on Tuesday asked local banks to reduce early settlement fee for mortgages to a maximum of one 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 sent to banks that those borrowers who had already paid three per cent settlement fee can get the refund from their banks within 30 days.
The early settlement fee was set at three per cent in June 2018.
“Early settlement or partial settlement fee 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,” reads the circular sent to banks on October 8.
Thanks to consistent decline in interest rates, mortgage rates have also been going down in the UAE in line with the 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 remortgaging activity.
Chris Schutrups, Managing Director, Mortgage Finder, said the news from the Central Bank is positive as it now opens up opportunities for those borrowers who were paying a higher rate of interest on their mortgage 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,” said Schutrups.
Quoting Dubai Land Department figures, the UAE 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 Dh38.5 billion or 84.4 per cent were paid cash and Dh7.1 billion 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 Dh8.7 billion. 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.