As mentioned in the article on mortgages from early October, the Central Bank has announced restriction on the percentages that people may borrow when purchasing property in the UAE.
For expats, the maximum loan to value for the first property purchased will be limited to 75% of the purchase price up a valuation of AED 5 million. For a purchase price above this level the maximum loan to value will be 60%. For all second properties the maximum loan will be limited to 60% regardless of value.
For UAE nationals the maximum loan to value for a first property of 80% on a value of up of AED 5 million and then 75% for larger valuations. For second and subsequent purchases they will be limited to 65%.
For any category of property bought off-plan from developers, the maximum loan to value will be set at just 50%,
Loans are repayable over a maximum of 25 years with expatriates to be no older than 65 at the time of the last repayment and UAE nationals age 70. Emiratis may borrow up to eight times their annual income, expatriates no more than seven times.
I agree with the comments in an editorial in The National which stated, “The new rules are welcome. A boom in lending, unsustainable rates of loan-to-value ratios and a seeming lack of due diligence by banks and institutions, are the reasons large parts of the world suffered economic failure five years ago, as subprime mortgages and toxic loans spooked the markets and plunged many economies into a deep and long-lasting recession. The recovery in property prices in 2013 and the improving economic outlook could easily have encouraged borrowers to reach beyond their means once more, as the International Monetary Fund (IMF) warned in a report published earlier this year.”
There are some who think this will have a detrimental effect on the local property market, but I doubt this will be the case. A move to stop excessive borrowing can only be a good thing and the IMF has stated that during 2012 some 70% of sales in Dubai were cash purchases.
The restrictions, which should be in place by later this month (November 2013) should be viewed as a positive step and these, coupled with the forthcoming introduction of a UAE-wide credit bureau, should lead to more stability in the local property and lending markets.
Previous mortgage article can be found here: Mortgages: here, there & everywhere
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