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UAE Central Bank makes ruling on Emirati and expat mortgage cap

ABU DHABI // Mortgages in the UAE will be capped at 80 per cent for Emiratis and 75 per cent for expatriates, the Central Bank has ruled.

According to banking sources, a high profile meeting in Abu Dhabi yesterday between the Central Bank and representatives of national and overseas lenders ended with the Bank accepting proposals put forward by industry lobby group the Emirates Banks Association.

Under the new rules, which are set to be announced officially shortly, second and third home loans for Emiratis would be capped at 65 per cent of the value of the property while those for expatriates would be capped at a loan to value ratio of 60 per cent.

According to the Arabic daily newspaper Al Khaleej, the Abu Dhabi meeting, which was attended by Central Bank governor Sultan bin Nassir Al Suwaidi and senior representatives of the 51 UAE based banks, included heated exchanges as the Central Bank warned against over lending.

Banking sources spoken to by The National confirmed that the information in the article was correct but added that no official announcement had yet been made on the subject.

The new cap is far lower than the Central Bank's earlier proposals, distributed to lenders in a circular in December which set the loan limits at 50 per cent for expatriates and 70 per cent for initial purchases. After initial purchases the limits would be tightened to 60 per cent LTV for Nationals and 40 per cent for expatriates.

Before recent efforts to introduce a mortgage cap, no lending limits existed in the UAE, prompting market commentators to voice concern that a frenzy of off plan purchases in Dubai would feed another property bubble.

However, the circular sparked panic in the Dubai property market at the beginning of the year as buyers pulled out of sales in the expectation of tumbling prices and prompting the Central Bank to rethink its' proposals.

"We are much happier with this news than with that at the end of December which came as a big shock to the system," said Mario Volpi, head of residential sales and leasing at Cluttons' Dubai office. "In that three week period everything fell off a cliff. This however looks like a sensible move as the market is definitely overheating - and the market has had four months to accept the idea that a mortgage cap is coming."

However, Mr Volpi said that the move would do little to prevent property speculation in the Dubai market where currently 70 per cent of buyers are cash purchasers.

"We don't believe that this will have much impact on the property market because the limits are not too different from what was generally available before," said Craig Plumb, head of research at Jones Lang LaSalle's Dubai office.

"It shows the intent of the Central Bank to monitor the situation and that they don't want the same sort of problems we witnessed back in 2008 and 2009.

"We are still hopeful that people have learnt their lessons from then but we are currently seeing danger signals that some lessons have not been learnt."

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