In offering UAE mortgages from five per cent this well established and rather conservative bank has thrown down a strong challenge to the rest of the local home loan market which offers mortgages from 7.5% upwards. You will need to have a spotless credit record to qualify for a CBD mortgage, but its requirements are not that difficult for senior expatriates.
The salary cut-off is Dhs15,000, and the credit assessment also includes whatever other debts clients have, and the size of deposit.
Thomas Smith, Deputy GM and Head of Retail Banking told AME Info: 'We work on the six-month EIBOR interest rate plus a fixed margin of 2-5%, depending on the financial profile of the client.
'We are a bank so we have our own local depositor base. We pay out less out to depositors if interest rates fall and can therefore pass that advantage onto our mortgage holders in lower rates. So if EIBOR falls, as it has recently, so will our mortgage rates.'
It is more difficult for home loan companies that have to issue mortgage-backed securities like Tamweel and Amlak Finance. They do not have the same flexibility as deposit takers and this is reflected in the higher cost of mortgage payments for borrowers.
Commercial Bank of Dubai is also competitive in having no charges for early repayments unlike many other UAE home loan providers. Standard Chartered charges 4% of the loan amount for early settlement. CBD also boasts a maximum mortgage arrangement fee of Dhs10,000, which stays at this level on any loan above Dhs1m.
Smith admits that CBD is trying to catch up from behind, being late to enter the market: 'What we saw is that the whole property market was developing at enormous speed and that you need something special to stand out. But taking the best mortgage clients is a low-risk and not a high-risk strategy.'
Expatriates looking at mortgage finance for a property purchase in the UAE will doubtless be very interested by this strategy which reduces the cost of buying a home on a mortgage substantially over the life-time of the loan.
But it is hard to imagine that the other lenders with their currently fat profit margins will not decide to follow. Otherwise the CBD could very quickly take their business away, and most certainly siphon off the best quality risk into its home loan portfolio.
It needed only one bank to break ranks in the UAE home loan market to bring about a revolution in the local mortgage market and a far better deal for the consumer. That has now happened.See also:Mortgage market development to transform UAE realty pricesDubai house prices to top UK property prices in 2008?Aldar races ahead with Yas Island