HSBC and Standard Chartered Bank have joined a mortgage price war that could stimulate demand in the country's sluggish housing market. Standard Chartered cut some rates to 6.5 per cent last month but HSBC responded at the end of last week when it reduced its rates to 6.75 per cent from 8.5 per cent for those with solid incomes, and a down payment of at least 25 per cent.
HSBC said its Status and Premier account holders would be eligible for additional discounts. This follows similar reductions by local banks in recent weeks, including Mashreqbank and RAK Bank. Property professionals and officials may call for lower mortgage rates to spur property demand, but analysts doubt lower rates will be enough to spark new house sales. "It is difficult to mortgage your way out of this," said Saud Masud, an analyst at UBS. "The banks are trying to create new demand but lower rates will not have a meaningful impact in the near term."
Mr Masud said the banks were merely catching up with the sharp fall in rents, while mortgage rates had come down slowly over the past year. That widening gap has eradicated some demand for new mortgages. "What you need is job creation, stability in the [property] market and bank lending," he said. "Until then, mortgage rates remain secondary. "It really does not matter whether rates stand at 6.5 per cent or at 1.5 per cent. Instead, people must have some idea where asset prices are going. With high supply still in the pipeline, house prices are prone to more declines."
In addition, banks that left the market for most of last year have begun offering mortgages again, said Showkat Wani, a senior adviser at the mortgage broker John Charcol in Dubai. Mortgage brokers and property agents hope the rate cuts are enough to attract buyers in a market where values in some areas have dropped by more than 50 per cent. "There is some fantastic stock available at some attractive prices," Mr Wani said. "It is all adding up. The only thing missing was the confidence. Everybody is gearing up for a good year."
HSBC was among the most aggressive lenders in the region during the property boom, but it scaled back significantly when the market reversed. "HSBC is very much open for business and wants to provide more flexibility and choice for customers who are looking to own a home," Ishrat Kiyani, the bank's head of premier and wealth management, said of the new rates. Homebuyers have an increasing number of options for financing. This month, the Government provided funds to enable Abu Dhabi Finance, which it partly owns, to offer mortgages as low as 5.75 per cent.
In one more sign of easier lending conditions, some banks are increasing the loan-to-value ratio they are willing to accept. Whereas most banks would previously lend only 80 per cent of the cost of a property, some will now consider providing 85 or 90 per cent of the purchase price for some clients, Mr Wani said. But in most cases, banks want to see that a customer earns a monthly salary of at least Dh14,000 (US$3,810). For self-employed applicants, banks are looking for customers to show that the business is profitable and has been in operation for at least one year.
"The underwriting is still very conservative. I don't think that will change, and rightly so," Mr Wani said. breagan@thenational.ae uharnischfeger@thenational.ae