UAE mortgage cap: Brokers still offering 85% LTV even as bankers promise better conduct

The emailed promotion notice received by Emirates 24|7.

Published Monday, January 07, 2013

By Vicky Kapur

A week after the UAE Central Bank sent shockwaves across the country’s banks by announcing to cap mortgage lending for expatriates at 50 per cent of a property’s value, it is emerging that some brokerages continue to offer old loan-to-value ratios to customers, albeit only for this week.

One such offer emailed promotion message was received by Emirates 24/7 on January 6, 2013.

Dubai-based real estate brokers Smith & Ken, through their mortgage division Smith & Ken Home Loans, claim to have a solution to their potential customers’ woes of not having adequate funds to cough up the 50 per cent down payment that new Central Bank guidelines mandate.

The message, titled ‘IMPORTANT NOTICE’ reads: “Dear Buyer, Are you aware the Central Bank are looking to change the Loan to Value (LTV) rate down to 50% for expatriates therefore meaning if you want to buy a property for AED 2,000,000 then you will have to pay AED 1,000,000 in cash towards it? Not many have this amount of spare cash, or they do but they don’t want to spend it!”

While that may indeed be the case, the Smith & Ken promotion offers customers 85 per cent LTVs if they act within this week.

The message lists the deal’s benefits and how to go about it.

“We have a solution for you exclusively through Smith & Ken Home Loans:

•         Before the 10th of January 2013 we can still provide you with a mortgage LTV of 85%

•         Interest rates from 4%

•         25 Year Mortgage Loan Term”

“Be quick! We can’t guarantee this fabulous rate of 85% LTV unless you submit all your mortgage application documents before the 10th of January 2013!”, the message concludes.

Benjamin J. Smith, CEO of Smith & Ken, told this website that, according to the ongoing discussions his home loans division has had with some of the UAE’s banks, the Central Bank mandate will become effective January 10, 2013.

“While some banks have, with immediate effect, frozen accepting any new applications, some of the other banks that we are dealing with have told us that they will continue accepting applications until the 10th [of January], and that such applications will be evaluated based on the old LTVs,” Smith told Emirates 24|7.

Other banks, however, have indeed begun offering revised LTVs to potential customers. While a number of banks have begun marketing the new 50 per cent loan ratios, others have altogether stopped marketing mortgages until more clarity on the issue emerges.

As per the new guidelines, Central Bank has mandated banks to cap mortgages for expatriates at 50 per cent of the property’s value for their first property, and those to UAE nationals at 70 per cent of the property’s value.

The same guidelines obligate that, for subsequent units, expats be allowed a maximum mortgage of 40 per cent of a property’s value while UAE nationals be allowed to borrow 60 per cent of the unit’s value.

Yesterday, the Emirates Banks Association is reported to have held a meeting to discuss the implications of the new guidelines.

Unnamed sources who attended yesterday’s meeting have said that the association will be requesting the Central Bank for a 30-day postponement in the implementation of the mortgage cap in addition to raising the cap by at least another 10 per cent.

The bankers are also mulling putting in place groundwork to develop a code of conduct for banks to follow. Basically, the banks are hoping to adopt a model that encourages self-monitoring instead of the Central Bank having to step in with strict policies.

In the past two years, the UAE’s Central Bank has come out with stingier guidelines on personal and auto loans, and the latest move is being seen as a continuation of its effort to weed out bad loans from the market so as to avoid a ballooning of the banks’ non-performing loans – something that happened during the previous economic slowdown of 2008/09.

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The page was last updated on: 14 January 2016 00:36