The Emirates Banks Association (EAB), the trade body representing banks in the UAE, has proposed a maximum home loan tenure of 25 years for expats with maximum funding of up to seven years’ salary or total income.
The association submitted a combined response, on behalf of all the banks, on February 4. The Apex Bank had asked banks to submit their response to the six questions it had asked by January-end.
EAB has also proposed a 75 per cent loan to value (LTV) for expats and 80 per cent for UAE nationals for the purchase of a first house, and 60 and 65 per cent LTV for expats and UAE nationals for second and subsequent houses.
The maximum financing amount proposed was eight years’ salary or total income for UAE nationals and up to seven years’ salary or total income for expatriates.
To the Central Bank’s question on accepted sources of repayment, the association recommended payment from salary and/or any other verifiable regular source of income, including rental and business income, but excluding end of service benefit, for both UAE Nationals and expatriates.
The maximum repayment period suggested was 25 years subject to 70 years of age at last installment for UAE Nationals and 25 years subject to 65 years of age at last installment (70 years if self-employed).
Accepted collateral provided to be first class mortgage on the financed property or second-degree mortgage in the case of properties financed under the various government housing schemes.
If a borrower retires during the period of the loan, the amount of the installment should be adjusted to his new income or loan should be rescheduled to maintain a 50 per cent debt service ratio taking into account all regular income.
Moreover, the Central Bank will include other components into the regulations such as transparency in the setting and publishing of all fees and interest rates including the calculation of interest/profit rate (fixed/floating based on EIBOR), with clear prepayment guidelines clarified at initiation.
Abdul Aziz Abdulla Al Ghurair, Chairman of EBA, said in January that the association is hopeful of closing the chapter, once and for all, with the apex bank by second half of the year.
What the Central Bank’s asked bankers to recommend:
- What should the maximum LTV be?
- What should the appropriate maximum financing amount be?
- What should the accepted sources of repayment be?
- What should the maximum repayment period be?
- What should the accepted collateral provided be?
- How should retired borrowers be treated?