Central Bank to restrict mortgages to 50 per cent of property value for expats

The Central Bank on Sunday issued new rules restricting mortgages to expats to 50 percent of the value of property, according to a circular issued by the bank.

Mortgages to Emirati borrowers will be restricted to 70 percent of the property value, while additional mortgages will require more payment, the memo to the UAE’s banks stated.

A larger downpayment would be required for any additional mortgages to either.

The move to cap mortgage loan-to-value by the Central Bank is less likely to affect the speculation in the real estate market because much of it is driven by cash buyers who either flip the property before completion or don’t rely on mortgages, said Khalid Howladar, senior credit officer at Moody’s. Rather, the new guidelines will affect those buyers in the market who need to borrow money to purchase property outright, he said.

“In terms of slowing down the investment property market, it [the guideline] is only moderately effective because of many investors involved in speculation and flipping, that caused the last bubble, are not using mortgages. It does make it harder for those who need to borrow to buy property.”

The result will likely be a slow down in demand for property from non-cash buyers, he said. “The goal would likely be to take some of the heat out of the property market and slow things down a bit but it doesn’t affect the substantial segment of the cash market and flippers that have an outsized effect on prices - It tackles only one part of the problem,” he said.