The borrowing tangle

The borrowing tangle
06 January 2013

WE HEAR you, cashy community – we read your stories and hear your concerns. You are courageous in coming forward for Money Makeovers, and you are active in your questions about debt and money borrowing.

The climate over the last five years has made us all nervous about investing, moving our money around or loaning money from anywhere, particularly banks. Still, the fear of money left alone, doing nothing but being spent, is ever-present in the back of our minds.

The need to tie our money to an asset, whatever our financial standing, has meant that we have become entangled in banks and their loaning policies more than ever before. As a result of over-lending before the recession hit, most banks themselves are now trying harder than ever to cancel out their negative equity. It was this that Mike Small, partner at VSM Consultancy, warned of during this week’s Property Show on Dubai Eye 103.8. “The financial market needs regulating… at the moment we are seeing the poorest people lose the most money,” he counselled, emphasizing that now more than ever people were borrowing more money at a higher cost by using unsecured loans in desperation.

As he warned of borrowing money to fund purchases on decreasing assets like cars, one listener followed by texting into the show live. The unnamed listener commented on a previous experience of using a bank loan to purchase a Kia, whereupon the dealership gave a false valuation to the bank to earn more profit from the sale, forcing the listener to borrow yet more money.

Another warning to listeners was to be mindful of more banks coming to the table with regards to mortgages – percentage lending is being driven higher once again in the property market. Presenter Siobhan and her fellow guests were all quick to attest to the detrimental effect that high percentage mortgages have on the property market.

ARE you thinking of borrowing from a bank to fund an investment or pay off credit cards? Are you in a situation of owing more money than you can afford to a bank? Have you had positive experiences with money borrowing? Comment to cashy below with your experiences!

Comments

  • Pavanjit
    Pavanjit
    2013-01-10T08:54:26

    What do you do when the bank unilaterally changes the mortgage contract to your detriment? In this case the Mortgage contract I signed with NBD (now Emirates NBD) was with loan interest terms which read "EIBOR + 3%". Soon after the downturn hit, the bank informed me that since "the existing mortgage contract did not reflect the true cost of borrowing of the bank, thus they are forced to change the contract to charge me interest as Emirates Bank Base rate + 3%". The EIBOR today is less than 1% and ENBD base rate is 4.5%. I am paying about double the monthly mortgage as a result.

    I appealed to various newspapers and to the UAE central bank to take up the case. Registered a case with the UAE central bank. One of them (I do not know who) did force ENBD to 'have a meeting' with me. However during the meeting the bank insisted that I had the best mortgage terms offered to anyone and there was no possibility of honoring the original contract.

    I have two property loans from ENBD as follows:

    JBR 2 B/R purchased for 1.7 million outstanding loan 1.15 million, current market value 1.6 million. EMI 10,020/-

    Motor City 1 B/R purchased for 1 million outstanding loan 0.4 million, current market value 0.6 million. EMI 3,620/-

    I could and would have moved the loans to another bank but for a final property I purchased: Motor City 1 B/R purchased for 1.4 million, outstanding loan with Dubai Bank 1.025 million, current market value 0.7 million (it is a large 1150 sq ft apartment), EMI (@ 8.5%) 10,650/-. Due to the negative equity on this final loan I am stranded. Dubai bank has now been taken over by Emirates Islamic Bank which in turn has merged with ENBD. So now all my loans are owned by one bank - one contract at EIBOR + 3% has been set aside, and another contract at 8.5% (it was 6.5% for the first 2 years) remains firm - all to suit the bank unfairly.

    I have no other loans, assets or liabilities. I am able to pay the 3 EMIs above from my salary and rental income, but feel terribly cheated and wronged by UAE banks. I am now wary of the UAE central bank due to its inability to uphold signed and registered mortgage contracts. Please help and advise.

  • tamirahamam
    tamirahamam
    2013-01-10T14:50:13

    Pavanjit - can I ask you to copy and paste this comment in the Q&A section of cashy here: http://www.cashy.me/en/qanda/

    This way, we can make sure one of our industry contacts can get you an answer as soon as possible with the most up-to-date information!

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