Dubai: The Central Bank of UAE has issued a new set of regulations on mortgage lending, defining the loan eligibility of various categories of borrowers based on the loan-to-value ratio (LTV).
The new regulations target to reduce the level of leverage and increase equity in property investments. The notification will be published in the UAE’s official gazette and will come to effect one month from the date of publication, the UAE Central Bank said in a circular issued to all banks and financial institutions operating in the country.
“In introducing these regulations, the central bank wishes to ensure that banks, finance companies and other financial institutions providing mortgage loans to UAE nationals, GCC nationals and expatriates do so in accordance with best practices,” Khalifa Mohammad Al Kindi, chairman of the board of the Central Bank of UAE, said.
In the case of UAE nationals, properties that fall in the value range of Dh5 million and below, the loan eligibility will be a maximum of 80 per cent. Each borrower can seek loan on only one property under this category. In cases where property value exceeds more than Dh5 million, the LTV shall be 70 per cent of the value of the property.
If UAE nationals seek loans for a second house or investment property, the loan eligibility shall not exceed 65 per cent of the value of the property.
In the case of expatriates, the central bank has set the mortgage limit for the first house (for owner occupier) at 75 per cent of the value for properties that are priced less than Dh5 million. If the value of the property is more than Dh5 million, the expatriate borrower can avail of a maximum of 65 per cent of that as mortgage.
Second house
For a second house or investment property, expatriates will be eligible only for a mortgage up to a maximum of 60 per cent of the property’s value.
Given the long-term nature of the development process and the higher level of risk to completion, the maximum LTV for mortgage on property being purchased offplan is set at 50 per cent, regardless of the purpose, value or category of the purchaser.
The maximum tenor for a mortgage loan is set at 25 years and the maximum age for the borrower at the time of the last installment is set at 70 years for UAE nationals and 65 years for expatriates.
The central bank also specifies that the debt burden ratio (calculated in monthly installment of all debts put together) should not exceed 50 per cent of the borrower’s monthly income. In addition, the maximum financing amount allowed for UAE nationals is set at eight times the borrower’s annual income and for expatriates, it is seven times their annual income.
The new central bank regulations specify that the repayment of mortgages should be made from the borrower’s salary, verifiable business or rental income and the use of end-of-service benefit is not allowed. In addition, principal and interest payments should be made on a reducing balance basis and repayments should be at a frequency not less than quarterly.
Mortgage loans with deferred principal repayment should only apply to investment loans and these loans should not permit non-repayment of principal for longer than five years.
Issuing the new regulations, the central bank said it is seeking to promote proper development, organisation and regulation of the mortgage loans market in the UAE.
