Posted inBanking & FinanceBanking & FinanceGCCMiddle EastProperty

UAE confirms new mortgage cap rules

Regulations will limit home loans for expats to 75% of property value; Emiratis will be able to borrow up to 80%

The UAE Central Bank has issued long awaited new rules governing bank lending to property buyers.

The new rules will limit home loans for expatriates to 75 percent of a property’s value for a first investment of less than AED5m ($1.36m).

UAE nationals will be allowed to borrow up to 80 percent.

More expensive homes will restrict expatriates to borrowing 65 percent of the value, and nationals to 70 percent.

For second and subsequent property purchases, expatriates will only be allowed to borrow 60 percent of a property’s value and UAE nationals up to 65 per cent, regardless of cost.

All mortgages will be restricted to 50 percent for off-plan properties, regardless of purpose, value or nationality.

Loans will be limited to a maximum of 25 years, while the maximum age at the time of the last repayment is 65 years for expatriates and 70 years for UAE nationals.

Repayments also cannot surpass 50 percent of a customer’s monthly income, or total more than seven years’ annual income for an expatriate and eight years’ annual income for UAE nationals.

The new rules will apply a month after they are published in the Official Gazette, expected in November, a statement said.

“The Central Bank is seeking to ensure that banks and other financial institutions have and maintain effective business standards and control frameworks in place for the granting of mortgage loans,” Central Bank governor Sultan Bin Nasser Al Suwaidi said in the statement.

The bank originally announced it would set mortgage limits in December, 2012, but halted any immediate change after banks opposed.

The central bank originally planned to limit mortgages to 50 percent for first-time foreign buyers and 70 percent for locals, while levels for subsequent homes would be set at 40 percent and 60 percent.

It agreed in principle to adopt ratios proposed by the Emirates Banks Association following discussions earlier this year.

The limits are intended to slowdown the booming property market, which has recorded price rises of more than 30 percent this year.

However, industry spokespeople have said it is unlikely to take much heat out of the market because mortgages much up only 25-30 percent of all property purchases in the country.

“Whilst the regulation is clearly good for the market it is actually unlikely to have a fundamental impact on current price growth,” CBRE head of research and consultancy Mat Green said.

“In this market cycle, the majority of residential transactions are completed in cash rather than through traditional finance avenues, meaning only a small fraction of the buyer demographic will actually be impacted by the new rules.”

Green said further regulation of the off-plan market would be needed to reduce price volatility and the negative impacts of speculation.

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