UAE banks offer mortgages above central bank cap

Confusion reigns as lenders split over implementation of 50 percent cap on home loans for expats

Several of the UAE’s largest retail banks are still offering mortgages to with a down payment of just 20 percent, despite a move by the central bank to cap home loan lending.

Banks across the Gulf state have adopted different policies as they await directives from the central bank, after it requested banks cap mortgages for expatriates at 50 percent of the value of the property for the first home and at 70 percent for UAE nationals.

Of the eight banks Arabian Business contacted to request more information about mortgages, only HSBC and the National Bank of Abu Dhabi said they had introduced the recommended cap. First Gulf Bank and Abu Dhabi Commercial Bank said they had stopped accepting applications for new mortgages altogether.

Noor Islamic Bank, Mashreqbank, Emirates NBD and RAK Bank continue to offer mortgages with a down payment of between 20-35 percent.

“All of the banks are adopting a different approach,” said Jean Luc Debois, managing director at mortgage consultants Homematters.

“Some of the international banks closed the doors straight away, [while] some have been accepting mortgage applications at a higher loan-to-value but over a slightly longer period of time. There are still a handful of banks that are operating at higher than 50 percent.”

The central bank will issue broad regulations governing the housing mortgage industry by the middle of this year, two sources familiar with the matter told Reuters on Sunday.

The sources said regulations would be discussed before being finalised with the Emirates Banks Association and individual banks. “The final pieces of the new mortgage regulations are being put together. It could be ready for issue by June this year.”

While Arabian Business contacted all the above-mentioned lenders for official comment, only First Gulf Bank and HSBC had responded at the time of publication.

A spokesperson for First Gulf Bank, the UAE’s second largest lender by market capitalisation, said the lender remained “committed to complying with all central bank instructions”. All applications for financial services are “based on terms and conditions that abide by UAE Central Bank policies.”

HSBC, which has introduced a 50 percent cap on mortgages but said it would honour pre-approved applications until 24 January, said it “strives to ensure we are always compliant with local and global regulatory guidelines".

“HSBC follows both the letter and spirit of all applicable laws and regulations, and has already implemented the revised mortgage cap as per the circular issued by the UAE Central Bank,” a spokesperson said.

The introduction of the cap follows a partial recovery of house prices in Dubai and new plans for several mega projects in the emirate.

Dubai was one of worst hit real estate markets during the 2008 downturn but the emirate’s safe haven status amid regional political turmoil helped push up average prices by nineteen percent last year, according to data from property consultants Jones Lang LaSalle.

Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

NOTE: Comments posted on may be printed in the magazine Arabian Business

Please post responsibly. Commenter Rules

Posted by: Red Snappa

Either the Central Bank needs to reiterate it's stance on the mortgage loan-to-value cap regulation or postpone its implementation. Otherwise it runs the risk of appearing to lack control of the banking sector.

It has already had to step back on the banks exposure limit to local emirates' government and state linked entity debt, faced with resistance from the banks. This was a very sensible measure, on the basis that there will be little lending emerging from the EU, North American, Australian and South African institutions in this direction and the dependency on local banks for major project finance will be even greater as will the financial stress levels.

The banks also need to bolster their capital as a security measure against what is still a heavy duty loan book across the board, with a relatively high risk factor. You have to be able to afford to lose money in order to make it, in this day and age!


All comments are subject to approval before appearing

Further reading

Features & Analysis
Trading bricks: The growing popularity of real estate investment trusts in the Gulf

Trading bricks: The growing popularity of real estate investment trusts in the Gulf

Investor interest in real estate investment trusts (REITs) has...

Forgotten fees: the challenge of investing in Dubai property

Forgotten fees: the challenge of investing in Dubai property

Investors attracted to low service charges at some Dubai residential...

Dubai real estate: which way will it go?

Dubai real estate: which way will it go?

In this special report, Arabian Business analyses the state of...

Most Discussed