Mortgage lenders face tough new rules imposed by the Central Bank to avoid another housing bubble.
Different borrowing limits will be allowed for first-time buyers and investors under the planned regulations. “The aim will be to differentiate between housing for living and housing for investment. At the moment there is no regulation to do that,” a bank official said.
The rules are intended to curb excessive lending to speculators by limiting the amount banks can lend them, while encouraging first-time buyers to borrow more to encourage them on to the property ladder.
House prices soared before the economic downturn and credit crunch pulled the market down in late 2008. Speculators buying and selling property beyond their means were partly blamed for the collapse.
Some analysts cautioned yesterday that the new regulations may further constrain already sluggish mortgage lending. Many banks are reluctant to increase their exposure to the property market after being burnt by a rise in payment defaults after the downturn.
“The Central Bank would appear to be trying to tackle speculation in the property market by making sure the buyer is not looking to profit and is putting significant equity into the property,” Majed Azzam, a property analyst at Alembic HC Securities in Dubai, said. “It could be a premature initiative because banks are already selective, there are no buyers in the market and prices are not rising.”
Policymakers are applying the finishing touches to the proposals before submitting them to the Central Bank’s board.
Changes to lending rules represent another move in the regulator’s attempts to rebalance the economy after the downturn and minimise the risk of future financial shocks.
This month the Central Bank introduced strict retail lending rules capping the amount banks can lend to customers at 20 times their monthly salary and setting the loan-repayment period at a maximum of 48 months.
“The Central Bank is increasing its influence over the actions of commercial banks. This is part of a global trend of increased regulation of the banking sector,” Jaap Meijer, a banking analyst at Alembic HC Securities, said.
UAE property prices have already fallen by about half from their peak and are forecast to remain under pressure because of an oversupply of property.
Mortgage lending rose by 16 per cent last year but with less new property on the market it is forecast to fall back by 6 per cent this year, Mr Meijer said.
Some banks already gear their lending towards first-time buyers. HSBC and Standard Chartered are among banks that will lend up to 80 per cent of the value of a property to first-time buyers but less for second-time buyers, Mr Azzam said.
But the sector suffers from a lack of transparency, with banks not knowing whether customers applying for a loan already have a mortgage or a property loan from another lender.