IN THE NEWS: Early Settlement Fees for Mortgages Reduced
We recently outlined, in our latest Observer report, the range of Government initiatives that have been introduced to stimulate the economy and support the real estate sector. These include the 10-year residency visa, the economic stimulus package and the new Real Estate Committee. In a further move to improve sentiment in the UAE’s real estate market, the UAE Central Bank has issued a directive to local banks to reduce the early settlement fee on mortgages to a maximum of 1 per cent of the outstanding balance on the property or AED 10,000, whichever is less.
The early settlement fee, which was introduced in 2018 to curb lending, allowed banks to charge clients a fee of up to 3% of the outstanding mortgage value to those that wished to exit their mortgages early. The fee primarily affected clients who wanted to remortgage for a better deal, but some banks also applied it to clients who were selling their properties before the end of their mortgage term, which led to some delaying or opting not to sell at all. After this fee was introduced, refinancing transactions and mortgage transfers between banks reduced considerably, by circa 75%*.
As a result of this new directive, as well as a decline in interest rates, borrowers will now be able to switch their mortgage to lenders offering better interest rates which is good news for those who have been tied into mortgage products that did not reflect changing market conditions. It is also good news for developers and financial institutions as this increased flexibility will ultimately encourage more mortgage-based property purchases in the UAE.
*Mortgage Finder Consultancy