UAE: Proposal to limit mortgage at 75 percent for expats

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Stunning view of World's tallest tower, Burj Khalifa in Dubai.
Stunning view of World’s tallest tower, Burj Khalifa in Dubai. Various stakeholders have given in their recommendations on the mortgage cap to be imposed for both expats and UAE Nationals, following a request from the UAE Central Bank. Photo-Daniel Cheong (used with permission)

Emirati banks have recommended the central bank to cap mortgage loans at 75 percent of the property value for expats and 80 percent for UAE nationals

In the latest round of negotiations, Emirates Banks Association (EBA) also pushed for capping second mortgages at 60 percent and 65 percent for expats and nationals, respectively. Further, loans for properties still under completion would be limited to 50 percent of its value. This move is aimed at minimizing the rapid sale of off-the-plan properties.

Some other recommendations proposed by the EBA also include limiting the total value of an individual mortgage to USD 6.8 million. This ceiling is likely to impact only 2 percent of the total mortgage market. The 51 member banks of EBA are yet to reach a consensus on whether to set a maximum loan value. Another recommendation is to set the maximum mortgage pay back period at 25 years. The EBA has also called for the establishment of a credit bureau by the Central Bank so that every mortgage could be registered.

Al Ghurair, CEO of lender Mashreq and chairman of Dubai International Finance Centre, believes that the new rules would allow consumer protection and are not only aimed at limiting exposure of banks. He states that, “it’s important to know it’s a protection for the consumer, it’s not for the banks. Banks will survive a crisis and real estate developers will survive a crisis… but ultimately we need to ensure the consumer is really guided”.

The recommendations were placed before the central bank after it issued a notification on December 30 to cap mortgage loan-to-value ratios. The central bank took this measure to prevent overheating of the property market and to reduce loan defaults. However, the UAE lenders sought clarification regarding the matter and a final decision by central bank would be made keeping in mind the proposals of EBA.

A final round of negotiations is expected with the Central Bank before the new rules are introduced in second half of the year.

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