The Emirates Bankers Association’s Retail Lending Committee formulated and today is circulating guidelines to member banks in the UAE that it hopes would set a new mode of operation relating to mortgage loans, according to a banker who did not wish to be named.
The new approach is seen as the response by UAE banks to the UAE Central Bank’s new rule on mortgage caps, which, if applied, would significantly lower the amount of capital a bank can loan for property buyers in the UAE.
The bankers met on last Sunday and agreed to ask the Central Bank if the new mortgage cap ratios could be postponed one month, and until they could formulate a code of conduct. This code of conduct or guidelines would buffer risks on loan defaults and make it more difficult for speculators to artificially inflate property prices.
The banks’ memo applies stringent guidelines on mortgage caps based on evaluative measures when engaging clients. These measures would require banks to consider a mortgage applicant’s residence span in the UAE; the loan amount requested; and for the first time, personal credit histories; as well as other indicators, such as lifestyle costs and spouses. The source confirmed that the banks will also ask the Central bank to revise mortgage caps closer to were they were before. “The new proposal will also require banks to consider the purpose of the property, as in bought for residence or investment,” the source added.
A credit bureau, however, would need to be established, which is a platform-curated and accessed by banks and financial institutions for reports on the credit history of clients. This organisation has been under consideration for several years but was never set up. According to the source close to the bankers, this bureau has become a priority for bankers and it is now fast-tracked and could be delivered within a few weeks.