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The Central Bank Of UAE issued a notice to lenders “to stop certain unacceptable practices” involving mortgages, which enabled some borrowers to use home loans for other purposes. Image Credit: Shutterstock

Dubai: The United Arab Emirates is cracking down on the misuse of home loans to prevent risky borrowing as an ongoing property slump weighs on banks.

The central bank issued a notice to lenders “to stop certain unacceptable practices” involving mortgages, which enabled some borrowers to use home loans for purposes other than “constructing, purchasing or renovating a house for owner occupier or investment purposes.”

“Any form of personal loans granted by banks or finance companies using property as collateral” shouldn’t be classified as mortgages, the regulator said in a statement. Lenders shouldn’t provide personal loans for longer than four years and lenders “must not take private houses as security” for this type of borrowing, it said.

The measures come as banks in the UAE are at risk once again as the property market endures it’s longest decline since a 2014 peak and non-performing loans rise. That’s prompted some lenders in the second-biggest Arab economy to ease payment terms by extending loan maturities and lowering interest rates.