Home ownership is a goal to which many people aspire, equated with both financial and physical security. And the home loan or mortgage (from the French for "death contract", incidentally) is a major pillar of the global banking system. The basic premise is simple - a bank lends money that the customer pays back with interest over time. However, as many UAE bank customers have discovered, the devil can be in the detail.
Although lending interest rates have been trending downwards globally in recent years, many homeowners in the UAE are locked into mortgages at high rates they are struggling to afford.
Customers interviewed by The National have told of having to pay rates that are almost twice the amount their own banks are charging new customers for similar loans, and as much as four times the official Emirates Interbank Offer Rate (Eibor).
While many of these loans are classed as "variable", some customers say that they've had to go cap-in-hand to their bank for even minimal relief. If they happen to find a better rate at another bank, they face punishing exit fees that can be as high as 3 per cent of the loan amount.
Mortgage contracts in the UAE typically include a clause that allows the lender to change its rates and penalties. In one case, a bank that sold mortgages at a rate linked to the US Federal Reserve rate changed to different criteria once that rate got too low for its liking. Exit fees were quietly increased after the property crash of 2008, which left many investors with mortgages they hadn't planned on.
Among the relatively small number of banks that offer loans on residences, the normal rules of competition seem to have been abandoned. It is clearly the responsibility of borrowers to know what they are getting themselves in for, but it is also contingent on banks to set unambiguous terms and conditions, and apply them equally to all customers. Those banks that offer and advertise better terms should have an opportunity here.
There is also a role here for the Central Bank to play in terms of regulatory oversight. In particular, it should be easier for consumers to refinance their mortgages to pay off the original loan.
The bottom line is that if lending rates remain prohibitively high, then the property market, and by extension the economy, cannot grow at a proper pace.