Fixed-rate mortgages to boost Saudi Arabia’s home ownership

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Saudi home buyers will be able to tap long-term, fixed-rate mortgages for the first time as part of a $32 billion push to raise home ownership.

The Saudi Real Estate Refinance Company (SRC) plans to roll out new funding to the Kingdom’s lenders, which in effect means buyers will no longer be held hostage to US interest rate movements.

The Public Investment Fund-backed finance company will soon be able to support long-term, fixed-rate mortgages and also plans to launch its first debt issuance next month, CEO Fabrice Susini told Arab
News.

Gulf economies with currencies pegged to the US dollar typically raise and lower interest rates in tandem with the Fed.

Interbank borrowing rates in Saudi Arabia and the UAE for example have been ticking up in line with US interest rates — making loans more expensive to repay.

While floating rates can sometimes reward borrowers, they can also punish them when rates begin to rise.

The current cycle of rising US interest rates comes at a time of sluggish growth and property market weakness across the Gulf.

“In the context of Saudi Arabia or any pegged country, the interest rate variation is partly outside the control of the domestic central bank,” said Susini. “So globally, it means that my mortgage can become
unaffordable regardless of my personal situation or even my immediate economic environment. Long-term fixed rates mitigate or address most of these risks or drawbacks.”

Mortgaged properties account for a tiny proportion of the overall housing stock in the Kingdom, where in the past house construction has often been self-built and more informally financed.

SRC estimates there are just 160,000 mortgages outstanding in a population of more than 31 million.

Susini said that there were also moves underway to encourage banks to extend mortgage lending beyond civil servants and the employees of select companies.


14/06/2018
Arab News
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