Uae announces new limits on mortgage lending

Photo credit: Chusico

The new laws will allow UAE nationals looking to buy their first property to borrow up to 80 per cent of a property’s value for units worth under Dh5 million and up to 70 per cent for more expensive properties. For second property buyers, lending will be limited to 65 per cent of the property value, no matter what the price.

First-time-buyer expats living in the UAE will be able to borrow up to 75 per cent for properties worth under Dh5 million and 65 per cent for those of a higher value. Second property purchases will be limited to 60 per cent.

Mortgage applicants buying off-plan properties will also be limited to a maximum loan of 50 per cent of a property’s value. Loans will be allowed up to a maximum period of 25 years, with final instalments to be paid at the maximum age of 70 years old (national borrowers) and 65 years (expat borrowers).

Total monthly instalments should also not exceed half of a borrower’s monthly income, with the maximum financing allowed to be eight times a domestic borrower’s annual income and seven times an international borrower’s annual income.

The new mortgage caps follow restrictions introduced at the end of 2012, which were swiftly rescinded following strong protests from the industry.

The new limits have been introduced in an attempt to prevent the Dubai property market from overheating and forming a bubble. Indeed, property prices in the emirate surged by more than 20 per cent in the second quarter of 2013 year-on-year, with values up 12 per cent in 2013 alone.

Concern over a possible housing bubble has been dismissed by some, who argue that prices are still 50 per cent below the peak of 2008 and that demand is currently organic rather than driven by opportunistic speculators.

Nonetheless, with UAE property prices falling 50pc between 2008 and 2010, the UAE will hope to cool down the recovering market and stabilise any future cycles from extreme rises and falls.

“I don't think they will have a negative effect on prices,” the head of retail banking at one UAE bank told Reuters, “It's a good, balanced document which takes everyone's needs into consideration.”