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Discuss this article (5 Comments)70% of banks set AED20k salary limit for mortgages
by This email address is being protected from spam bots, you need Javascript enabled to view it on Thursday, 15 October 2009
MORTGAGE LENDING: 70 percent of banks surveyed said mortgage applicants had to earn more than AED20,000 a month. (Getty Images)
Seventy percent of banks in the MENA region require a minimum monthly salary of more than $5,000 to qualify for a mortgage, a new survey by Colliers International has revealed.
The poll of 13 banks and mortgage lenders - 10 local and three international - also showed that about 80 percent were reluctant to consider loan applications in developments that are not complete.
In its MENA overview for the third quarter of 2009, the real estate consultancy firm said 70 percent of banks surveyed set the minimum monthly salary requirement at $5,450 (AED20,018) for mortgage loans.
The minimum salary in the UAE for residential properties was in the range of $2,725 to $5,450 per month, it said.
Out of the 13 institutions polled, 77 percent of them were found to be currently providing residential property loans.
But the loan-to-value ratios (LTVs) have been lowered to 50 to 85 percent whereas in 2008 the LTV's saw a high of 99 percent, the report added.
Forty percent of lenders surveyed had restricted lending to one property per applicant, Colliers said.
"Lenders reported a hardening of credit requirements for both residential and commercial property loans. This follows the sharp decline in property values witnessed by the industry over the past 12 months as well as the industry aversion to undue risk," the report said.
It added that lenders were expecting the credit standards to ease significantly over the next six to 12 months.
The report said that demand for and availability of project finance in Dubai had declined while Abu Dhabi remained unchanged while default rates on both commercial and residential lending were reported to have increased.
READERS' COMMENTS
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Real Estate Lending, I told you so....
Posted by Kamran, Dubai on Saturday 17 October 2009 at 18:59 UAE time
What I realize about the banks here are that they are very late to the game. After Real estate prices are back up at least 40% from the trough, then you will see the banks say to themselves "hey it's our business to lend, in fact we make money that way".
Their sophisticated risk managers will give them the green light, but guess what my friends you would have missed a 40% move in the market by then.
I don't care what anyone thinks about what I'm saying. I just want to come back and say I told you so....
Posted by Kamran, Dubai on Saturday 17 October 2009 at 18:59 UAE time
What I realize about the banks here are that they are very late to the game. After Real estate prices are back up at least 40% from the trough, then you will see the banks say to themselves "hey it's our business to lend, in fact we make money that way".
Their sophisticated risk managers will give them the green light, but guess what my friends you would have missed a 40% move in the market by then.
I don't care what anyone thinks about what I'm saying. I just want to come back and say I told you so....
Wait till January 2010
Posted by Damodhar Ashok, Dubai, UAE on Friday 16 October 2009 at 01:31 UAE time
This is a period where all banks in UAE are assessing the market and customer reaction to the restricted lending.
Although the property prices are very attractive, we still do not see enough first time buyers, buying their dream homes, due to the steep down payment to be put down on a property.
As we are still seeing some amount of fluctuation in the property prices, and still some distress sales happening, the banks are a little sceptical on the stability of the property market.
On the other hand we are able to see some luxury properties being bought for very low prices, and a lot of first time buyers getting more interested in buying their first homes in Dubai, which of course is a very good sign.
As most of the banks are maintaining or building a good balance sheet for the year ending, they will not take aggressive measures as far as lending is concerned. In January when new budgets are drawn, all banks will become more aggressive in lending.
Till then lets keep our fingures crossed.
Damodhar Ashok
Posted by Damodhar Ashok, Dubai, UAE on Friday 16 October 2009 at 01:31 UAE time
This is a period where all banks in UAE are assessing the market and customer reaction to the restricted lending.
Although the property prices are very attractive, we still do not see enough first time buyers, buying their dream homes, due to the steep down payment to be put down on a property.
As we are still seeing some amount of fluctuation in the property prices, and still some distress sales happening, the banks are a little sceptical on the stability of the property market.
On the other hand we are able to see some luxury properties being bought for very low prices, and a lot of first time buyers getting more interested in buying their first homes in Dubai, which of course is a very good sign.
As most of the banks are maintaining or building a good balance sheet for the year ending, they will not take aggressive measures as far as lending is concerned. In January when new budgets are drawn, all banks will become more aggressive in lending.
Till then lets keep our fingures crossed.
Damodhar Ashok
liqudity
Posted by gordon on Thursday 15 October 2009 at 13:07 UAE time
This is actually a liquidity issue.
In any credit induced recession it takes on average 7 quarters for the money to be freely available again.
As there is a shortage of credit, then the banks will automatically ration the money to the lowest risk.
It should begin to change dramatically at the end of 2010
It may be unfair, but that is the law of supply and demand.
Gordon
Posted by gordon on Thursday 15 October 2009 at 13:07 UAE time
This is actually a liquidity issue.
In any credit induced recession it takes on average 7 quarters for the money to be freely available again.
As there is a shortage of credit, then the banks will automatically ration the money to the lowest risk.
It should begin to change dramatically at the end of 2010
It may be unfair, but that is the law of supply and demand.
Gordon
Not helping...
Posted by Anonymous, Dubai on Thursday 15 October 2009 at 12:01 UAE time
I agree with John.
This strict policy is not helping anyone...not buyers who want in on the market and certainly not the developers who would like to sell their properties to end users instead of speculators.
Let's think about how many studios and 1 bedrooms are available right now and will be available in the next 12 months. Many of these units would be available for less than AED 700,000. If someone puts down 30% (AED 210,000) they would have a mortgage amount of AED 490,000. Depending on the interest rate, payback period and other financial commitments of the buyer, I believe someone earning AED 15,000 could probably afford payments of AED 4,000 to AED 6,000. They are probably paying this much or more on rent so why not buy their own place and try to build up some equity?
I just do not understand why the banks have gone from one extreme where they were giving money away to everyone to the opposite where qualifying for a mortgage loan is nearly impossible. I remember receiving phone calls last year from different banks begging me to take a mortgage from them. Those calls have stopped. Going to such an extreme does not make good business sense.
The government should seriously get to work on the Amlak & Tamweel merger and stop dragging their feet. More finance options should help both developers and buyers.
Posted by Anonymous, Dubai on Thursday 15 October 2009 at 12:01 UAE time
I agree with John.
This strict policy is not helping anyone...not buyers who want in on the market and certainly not the developers who would like to sell their properties to end users instead of speculators.
Let's think about how many studios and 1 bedrooms are available right now and will be available in the next 12 months. Many of these units would be available for less than AED 700,000. If someone puts down 30% (AED 210,000) they would have a mortgage amount of AED 490,000. Depending on the interest rate, payback period and other financial commitments of the buyer, I believe someone earning AED 15,000 could probably afford payments of AED 4,000 to AED 6,000. They are probably paying this much or more on rent so why not buy their own place and try to build up some equity?
I just do not understand why the banks have gone from one extreme where they were giving money away to everyone to the opposite where qualifying for a mortgage loan is nearly impossible. I remember receiving phone calls last year from different banks begging me to take a mortgage from them. Those calls have stopped. Going to such an extreme does not make good business sense.
The government should seriously get to work on the Amlak & Tamweel merger and stop dragging their feet. More finance options should help both developers and buyers.
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