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13 April 2024

UAE mortgage cap: Bankers push for 75% LTV for expats

By Parag Deulgaonkar

The Emirates Banks Association (EBA), the body representing banks in the UAE, is seeking a consensus on a questionnaire issued by the UAE Central Bank regarding mortgages and will submit their recommendations by this month-end, according the association’s chief.

“All the banks have got the questionnaire and they will be submitting their answers to us.

“The EBA will then meet and discuss the issue to arrive at a consensus.

“The proposal will then be forwarded to the UAE Central Bank following which, we will hold a dialogue with them,” Abdul Aziz Abdulla Al Ghurair, Chairman of EBA, said on Sunday.

EBA is hopeful of closing the chapter, once and for all, with the apex bank by second half of the year.

Prior to receiving the new Central Bank questionnaire, the association submitted its proposal, which called for an increase in the loans-to-value (LTV) ratio to 75 per cent for the first property purchase by an expat and 60 per cent for the second and subsequent properties. For properties under construction a 50 percent LTV ratio is sought.

For locals, the cap proposed was 80 per cent for the first property purchased and 65 per cent for the second and subsequent properties.

It was widely reported that a UAE imposed a mortgage cap for 50 per cent for first property buyers by expats and 40 per cent for subsequent and secondary purchases, while for locals the cap was at 70 per cent and 60 per cent, respectively.

However, Central Bank Governor Sultan bin Nassir Al Suwaidi clarified on January 21 that he had not sent any circular in this regard to the country’s 51 banks.

Talking on the issue of maximum tenure for home loans, Al Ghurair said banks had a consensus to lend for a maximum of a 25-year period.

“We want a system in place that will be good for the real estate market, the banking sector and the economy,” he added.

Last week, the Central Bank had asked banks and finance companies in the UAE to give their opinion on mortgage loans to them by January 31.

Sultan bin Nasser Al Suwaidi, Governor of Central Bank of the UAE, issued Notice No. 57/2013 on January 22, regarding proposed regulations referring to mortgage loans for individual customers at banks and finance companies.

The new notice referred to the previous one, which was issued by the Central Bank on December 30, 2012, regarding maximum loan to value in case of mortgage loans.

The new notice stated that views of banks on percentages specified in its previous notice were diverse, therefore, the Central Bank considers it appropriate to seek opinion of all banks and finance companies on the main components of the regulations, that the Central Bank intends to issue soon.

The apex bank attached a questionnaire on opinion of banks and finance companies, which included these questions:

- 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?

The Central Bank has said it plans to issue a regulation soon to exempt property investors from penalties and interest charges on transfers and early repayment of mortgages.