The mortgage volume in the UAE has begun to take a dip due to slowing real estate activity and tightening liquidity, say experts.

The home finance market is feeling the impact of the rising cost of borrowing and a fall in the appetite for off-plan properties, the GCC Home Finance Summit in Dubai was told.

Tighter regulatory mechanisms were also reducing demand for home loans.

"The forecast of lower economic growth and the tighter credit market will impact real estate supply and demand," said Sundar Parthasarathy, Senior Vice-President and Head of Retail Assets at Abu Dhabi Commercial Banks (ADCB).

"Eibor has appreciated significantly over Libor, reflecting the increasing cost of financing in the UAE.

"The high cost of lending has made a number of banks planning to launch home finance programmes to delay their plans."

He said the tightening liquidity has pushed home finance providers to increase their mortgage rates and lower loan-to-value (LTV) ratios. ADCB has revised its mortgage rates from around 7.5 per cent to 9.5 per cent and has lowered its LTV ratio to 70 per cent from about 90 per cent.

The need to find a 30 per cent deposit is putting substantial pressure on customers, he said, making it harder for them to obtain a home loan.

"The business has come down and everyone is seeing the same scenario," said Parthasarathy.

"ADCB's mortgage volume last month halved to Dh200 million from the usual monthly figure of Dh400m to Dh450m.

"Mortgage applications went down from between 35 and 45 to 15 applications a month. Before the liquidity issue erupted interest rates in the UAE were more expensive than those in the US.

"A few months ago UAE rates averaged between 7.5 and eight per cent, regardless of the tenor of the loan. That was 2.4 per cent higher than the US' 5.6 per cent rate for a 30-year mortgage and 5.2 per cent for a 15-year loan."

Tamweel and Amlak have reduced their LTVs from 90 per cent to 75 per cent and 65 per cent respectively.

HSBC's home finance department reduced its mortgage LTVs from 85 per cent to 60 per cent on apartments and 70 per cent on villas. Anecdotal evidence suggests that the spread between mortgage providers' property valuations and actual property prices has widened significantly. This means that loan-to-price ratios are increasingly falling below LTVs, putting further pressure on demand.

Varun Sood, CEO, Home Finance, Tamweel, admitted that global conditions had put the sector under threat.

"In the past there has been access to international securitisation and domestic funding. Now the domestic debt market has tightened up and the international debt and securitisation market has completely disappeared," Sood said.

"The volatility in the cost of construction materials such as steel has made pricing difficult. Then you have the increasing constraints from the regulatory body – this is good but it has seen the attraction of off-plan sales decline," he said.