x Abu Dhabi, UAESaturday 22 July 2017

Banks eye loan ratios in UAE mortgage cap debate

Mortgage cap:  Lenders will attempt to head off a sharp tightening of limits on home loans by providing the UAE Central Bank with their view on its controversial proposals.

Property agents said sales dried up almost overnight following news of a cap on UAE mortgages. Pawan Singh / The National
Property agents said sales dried up almost overnight following news of a cap on UAE mortgages. Pawan Singh / The National

Commercial lenders will attempt to head off a sharp tightening of borrowing limits for home buyers this week by providing the UAE Central Bank with the sector's view on its controversial mortgage cap proposals.

Reassurances from the Central Bank last week that it had not yet imposed new limits on home lending brought "relief" to the industry, according to one banker who asked not to be identified.

Last month, a circular was sent to banks that restricted borrowing for expatriates to 50 per cent for the first property and 40 per cent for subsequent properties. Emiratis will be able to fund up to 70 per cent of their first home via mortgage loans and 60 per cent for any further purchases.

Property agents said property sales dried up almost overnight after the circular was distributed.

Sultan Nasser Al Suwaidi, the Central Bank Governor, moved last week to clear up the "misunderstanding" and said the regulator would consult with banks over the issue and issue a new set of regulations for mortgages before the end of the year.

Banks will be polled on maximum loan-to-value limits alongside accepted sources and time periods of repayment.

The new regulations will also include other components, including consumer protection and treatment of retirees.

Banks have until Thursday to submit their responses.

No limits existed before, which allowed some lenders such as Abu Dhabi Commercial Bank and Emirates Islamic Bank to offer 100 per cent loan-to-value mortgages. The Central Bank sought to curb any risk of a return to credit excesses by introducing rules on personal loans and credit cards in 2011.

Banks are hoping that the dialogue with the Central Bank will result in any new rules including an easing of its proposed loan-to-value limits for expatriates, said Mohamed Zaqout, the head of Al Hilal Bank's personal banking group.

"Typically we would look at 75 to 80 [per cent]," he said. "We believe expats and locals are the same because it is property risk." However, non-residents and buyers of second homes should not be financed for more than 50 per cent of properties, he added.

The Emirates Banks Association will lay out its position publicly on the subject in a press conference taking place in Dubai today presided over by Abdul Aziz Al Ghurair, the chairman of the lobby group and chief executive of Mashreq.

ghunter@thenational.ae