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20 April 2024

Home buyers to disclose source of money

By Parag Deulgaonkar

Homebuyers in the UAE are being asked by banks to reveal the source of income for the money that will be paid as down payment when buying a property, Emirates 24|7 can reveal.

Two banks - a local Islamic bank and an international bank — have already implemented this rule.

“We are taking a declaration from the mortgagor on the source of income for money used for down payment,” a mortgage consultant working with a Dubai-based Islamic bank told Emirates 24|7.

“The declaration is on a piece of paper signed by the mortgagor. We are taking it to ensure that we [bank] have fulfilled our obligations of ascertaining the source of funds,” he added.

The UAE Central Bank issued directives in October 2013 stopping homebuyers from using personal loans or credit cards to meet their down payment requirements.

“Down payment required from the borrower (home buyer) of its own sources and not from sources of borrowing again, including personal loans or credit cards,” the apex bank said.

A number of investors, inspired by profit-making flippers in 2006-07, were applying for personal loans to meet the down payment requirements for buying property. When the property market crashed, most of them lost a fortune of their hard-earned money or chose to become defaulters. This meant they were burdened with payments of not only the personal loan, but the mortgage as well.

As per the new guidelines, implemented from January 1, 2014, mortgage loans to Emiratis must not exceed 80 per cent in case the property value is Dh5 million or less. The loan must be cut to a maximum 70 per cent in case the property value is above Dh5 million.

Loans to expatriate clients must not exceed 75 per cent of the property value of Dh5 million or less and 65 per cent if the property value is more than Dh5 million.

As for clients buying property before construction or on the map, the maximum loan they can get is 50 per cent of the unit’s value.

The law set a maximum period of 25 years for a mortgage loan provided that the Emirati debtor must not exceed 70 years of age when repaying the last installment of the loan. As for expatriate clients, the law set the maximum age at 65 years. Besides, banks have to ensure they should not give loans that exceed 50 per cent of the client’s monthly income.