Central Bank issues new rules on mortgage cap

The UAE Cental Bank has issued long awaited regulations restricting the amount of cash that homebuyers can borrow on their mortgages in an attempt to cool rampant house price rises.

abu dhabi // Home loans will be capped at between 60 and 80 per cent of a property’s value in new rules announced today.

For off-plan homes the maximum mortgage will be even lower at 50 per cent, under the Central Bank’s long awaited regulations aimed at cooling rampant price rises and averting a potential bubble.

“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,” said bank governor Sultan Al Suwaidi.

UAE nationals will be able to borrow up to 80 per cent on properties worth less than Dh5 million, and expatriates 75 per cent.

For homes worth more than Dh5m, mortgages for Emirati first-time buyers will be capped at 70 per cent, and expatriates 65 per cent. For second and subsequent purchases, UAE nationals will be able to borrow 65 per cent of a property’s value, and expatriates 60 per cent.

Loans are repayable over a maximum of 25 years. Expatriates must be no older than 65 at the time of the last repayment, UAE nationals 70. Emiratis may borrow up to eight times their annual income, expatriates seven times.

The rules take effect a month after they are published in the Official Gazette.

“This is an important step in the right direction,” said Sultan Butti Bin Mejren, director general of the Dubai Land Department. “Setting the highest and the lowest ceiling for lending contributes to protecting the market from falling into the errors of uncontrolled lending.”

The regulations come as no surprise to the property market, said Matthew Green of CBRE, the property services company. “They may have a slight dampening effect on the end-user market but as cash buyers dominate the Dubai market we don’t expect them to have much of an impact.”

But other agents warn that the new rules will put more pressure on buyers already stretched by increases in house prices and property transfer fees.

“These new limits are set at a relatively acceptable level and we expect banks to offer other personal loans topping up loan limits to roughly the same levels as were previously available,” said Mario Volpi, managing director of Prestige Real Estate.

“However, the sentiment at the moment is that it is much harder to get sales agreed than it was a few weeks ago. Whether this is the straw that breaks the camel’s back we don’t know, but it will certainly make people think harder about whether to buy.”

The Central Bank first proposed mortgage caps at the end of last year, limiting loans to 50 per cent of value for expatriate first-time buyers and 70 per cent for Emiratis.

The proposal was withdrawn for consultation after an outcry from lenders and a temporary slowdown in the Dubai property market.