Thursday, December 05, 2013

UAE continues to adhere to 85% home finance rule

Although, there is no clue on when the new mortgage rules will get effective, home buyers can still borrow up to 85percent of the property value in the UAE at present, say Bankers.

The bankers said that although implementation of new guidelines by Central Bank was likely to get effective from 1st December, no confirmation on the same has been available, and hence, it is not known when the new rule will get effective and that as of now, they are lending at the previous loan-to-value (LTV) ratio.
The UAE Central Bank had issued new mortgage lending regulation in October, which permits banks to offer loans of up to 80 percent of the value of the property to nationals, and 75 percent to expatriates.

If UAE nationals seek loans for a second house / investment property, the loan eligibility may not exceed 65 percent of the value of the property, while expatriates purchasing second house will be eligible for a mortgage up to maximum of 60 percent of property value.

The maximum LTV for mortgage on property is set at 50 percent when buying off-plan, irrespective of purpose, or category of the purchaser. The new rule does not permit home buyers from using personal loans or credit cards to meet their down payment requirements.

Last month, the UAE Central Bank Governor, Sultan Nasser al Suwaidi said that the new limits on mortgage loans would help the banking sector.

The UAE Central Bank’s Financial Stability Review in September 2012 indicated the direct residential mortgage exposure by banks at Dh.37bn for nationals and Dh.37.6bn for expatriates as of 2011. The total constitutes less than 7 percent of the net loans and advances at the time in the UAE banks.

A report on the impact of the new mortgage regulation by Standard & Poor Rating Services, said that although such exposure is likely to have grown since then, in line with increased volume of property transactions in 2012 and 2013, residential mortgages constitute less than 10 percent of UAE banks’ lending books. The direct impact from the regulation on aggregate lending may be rather limited, he said.

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