UAE homeowners feel the pinch as mortgages rise on back of Fed rate increase

HSBC Middle East raised its mortgage rate based on its Emirates Interbank Offered Rate by just under a quarter per cent from the start of the month.

HSBC Middle East raised its mortgage rate based on its Emirates Interbank Offered Rate by just under a quarter per cent from the start of the month. Ravindranath K / The National

UAE homeowners have been hit by new year mortgage rate increases as banks pass on rising interbank-borrowing costs.

HSBC Middle East raised its mortgage rate based on its Emirates Interbank Offered Rate (Eibor) by just under a quarter per cent from the start of the month. A spokeswoman confirmed that its variable rates had increased at the beginning of January in line with Eibor.

It comes hard on the heels of the first rate increase by the US Federal Reserve in almost a decade and an 11 per cent rise in interbank borrowing costs over the past month.

Other home lenders including Standard Chartered said they had raised repayments or were expecting to follow suit as rates start to tick up again for the first time in more than five years. That will be unwelcome to residents who are already feeling the pinch from higher consumer prices in the past two years.

“It will be big for someone who has literally taken a mortgage that’s just right for his income level and can’t afford any more, not so big for someone who has millions in the bank,” said Ambareen Musa, the chief executive and founder of Souqalmal.ae, a price comparison website.

“The mortgage market is not massive but it will have an effect on property owners, typically who have taken a variable mortgage quite a few years ago where the initial fixed rate period has finished. It will affect them 100 per cent.”

Tightening liquidity in the banking sector has also placed upwards pressure on interest rates.

Most mortgages in the country are benchmarked to Eibor and homeowners have benefited from years of declining mortgages costs.

A bank will typically add 3 to 5 percentage points to Eibor to come up with the rate it offers customers. As a result, most mortgages range between 4 and 7 per cent.

The rise in home loan rates will come as a blow to the property sector, which has been hit hard by the strong US dollar that has deterred investment from the euro zone and elsewhere.

The number of property sales in some parts of Dubai has fallen by more than 45 per cent since the most recent peak in 2013, the real estate information service Reidin said. The company said that it had also noted an increase in the number of properties purchased with mortgages – a method of buying usually associated with owner-occupiers rather than landlords.

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