UAE mortgage cap effect: Banks inform clients old pre-approval letters cancelled

One bank plans to return full or half the amount of the pre-approval processing charges if they decline new approval letter

Following the UAE Central Bank’s move to restrict home loans to expats to 50 per cent of a property's value, banks on Monday started informing customers that the old mortgage pre-approval letters stand cancelled and new loan-to-value (LTV) ratio stand as per the Apex Bank’s directive, two bankers told Emirates 24/7.

“There was a meeting of our sales person last (Sunday) night and we were informed to tell our customers that their pre-approval letters stand cancelled. From January our LTV will be only 50 per cent of the home value,” the banker said on conditions of anonymity.

“The applications being processed at the older LTVs will go ahead, but all our sales agents have been advised to market our product as the Central Bank guideline.”

The banker said that their bank was planning to return full or half the amount of the preapproval processing charges to the customers if they decline the new approval letter.

Banks in the UAE charges as much as Dh5000 to process and issue mortgage pre-approved letters.

Mortgage consultants and property agents say the new cap on home loans will drive end-users away.

Sam Wani, General Manager, Independent Finance, told this website: “Huge numbers of end users are looking to buy a home. We have a massive pipeline running all the way to the second quarter of 2013. Many organizations were planning their forecasts and putting business plans in place.

“The said circular could have some implications on the property market, however the exact details are not public yet. We will be consulting with our colleagues in the banks and real estate industry to look at the implementation of the circular.”

Parvees Gafur, Chief Executive Officer, PropSquare Real Estate, says: “Transactions will come down and end-users will certainly shy away from buying properties which are already become costlier this year. But we have to see what happens in a week or two. We hope the Central Bank revokes its decision.”

In October, Tamweel, the Islamic home mortgage company, said average finance-to-value ratio currently stands at 75 per cent as against 80 per cent in 2008. It also said 90 per cent of home buyers in the UAE were end-users based on its analysis for the period between January 2011 and June 2012.

In 2011, a NCB Capital report said the mortgage markets in the six-nation Gulf Cooperation Council remains extremely underdeveloped by global standards. In the UAE, it was only four per cent in 2005, but is estimated to have surged to around 14 per cent in 2009, while Kuwait and Qatar stood at around 14 and 9 per cent, respectively. In Saudi Arabia, it is only around 1 to 3 per cent while it is estimated at nearly 4.5 per cent in Bahrain.

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