Lloyds set to fight for Dubai home loan market

Lloyds Bank, one of the UK's largest banks, was among the first financial institutions to cut its lending in the Dubai property sector in 2008. Now, encouraged by signs of stability, it is re-entering the market.

Banking group Lloyds is to offer new mortgages on apartments in Dubai as stability prompts its return to the emirate. Pawan Singh / The National

Lloyds Banking Group is to resume offering mortgages in Dubai after a two-year hiatus triggered by the collapse of property prices in the emirate.

The bank, one of the largest retail lenders in the UK, was among the first financial institutions to cut lending to homebuyers in Dubai in November 2008.

Buoyed by evidence of stabilising prices in some areas of the emirate, it is planning to launch mortgage products for apartment buyers as it fights for a piece of the market again.

Lloyds never officially stopped lending to homebuyers, but in late 2008 it reduced its loan-to-value ratio to 50 per cent and shifted its focus to purchasers of villas. The move was considered a sign to investors that the market had taken a turn for the worse. Since the start of the year, the bank has quietly been expanding its offerings.

Last week, it began offering mortgages for villas with loan-to-value ratios of up to 70 per cent, with two-year discounts on its 7.99 per cent variable interest rates for some customers, according to a circular sent to local mortgage brokers. Several fees were also cut to make the financing more attractive.

More significant for the depressed mortgage market is a planned home loan product for apartments. A Lloyds mortgage adviser who declined to be named said on Sunday that the new product would offer mortgages with 60 per cent loan-to-value ratios and an 8.49 per cent interest rate solely for homes in the Downtown area around the Burj Khalifa and the Shoreline Apartments on the Palm Jumeirah.

"We have totally avoided apartments for the last two years," the consultant said. "But we have decided to start lending again."

At the peak of the market in August 2008, the bank was lending with loan-to-value ratios of 80 per cent on villas and 70 per cent on apartments.

While Lloyds's new lending terms for Dubai are not as attractive as those of some of its competitors, analysts said it was a strong indication that banks believed stability was returning to the Dubai market.

Prices in Dubai declined by 2.4 per cent for apartments and 5.1 per cent for villas in the fourth quarter of last year compared with the previous three months, the consultancy Cluttons said in a report released on Sunday.

Steven Morgan, the head of the UAE office of Cluttons, said its data showed a "levelling out of prices" and the halt of declines in some areas.

The more established "lifestyle" areas, such as Old Town, Dubai Marina, Palm Jumeirah, The Meadows and The Greens were proving more resilient in sale prices and rents, he said.

"Dubai is becoming a more mature market than it was in 2008, when prices rose and fell together at the drop of a hat," he said. "We are seeing hot spots and cool spots across the city."

He said foreign banks, which had been waiting in the wings during the property downturn, were starting to lend again because the data showed "glimmers of hope" for the market. Standard Chartered and Barclays were both increasing their mortgage lending, he said.

Richard Musty, the managing director of Lloyds TSB Middle East, a unit of the banking group, would not comment on new mortgage products but said enquiries about lending for home purchases were on the increase.

"Over the last few months we have had more enquiries from customers about our mortgage product, which suggests that people are starting to view the local market as more stable than they had previously," he said. "We continue to consider lending based on the specific circumstances of the individual looking to borrow."

Despite falling interbank-borrowing costs in the Emirates, mortgage rates have remained stubbornly high. Lloyds's 8.49 per cent mortgage is more than double the rate of some of its comparable UK offerings.

The bank is 43 per cent owned by the UK government, which bailed it out in 2009 during the financial crisis.

* additional reporting by Brad Reagan