Expats working in the United Arab Emirates (UAE) who want to buy a home with a mortgage are facing a stringent 80% mortgage cap.
The recommendation from the Emirates Banks Association (EBA) is part of a move to help protect the UAE’s fragile housing market from another property crash.
The EBA has sent its recommendation to the country’s central bank as part of consultation about housing policy.
Expats now face an 80% mortgage cap on the value of a property for their first house and 60% for any second homes.
In contrast, Emiratis face a 75% cap for their first purchase and then a 60% cap for subsequent property purchases.
The UAE’s central bank indicated last year that the mortgage cap would help regulate the country’s property sector.
Salary and age limits
They sent a letter to the commercial banks stating that loans to foreigners should be limited to 50% of a property’s purchase price and 40% for other homes.
Their recommendation for nationals was a 70% first home cap and then a 60% limit.
News of the proposal caused a stir which then led the central bank to explain the letter was not issued as a regulation but offered guidelines for a proposed new law.
The association’s chairman Abdul Aziz Al Ghurair told a news conference that the central bank was in discussions with commercial banks and that a new law would be introduced later in 2013.
Expats are also facing the likelihood that any mortgage will also face a cap of a maximum of seven times their annual salary, though they can add to that figure with other income, such as rentals but not any end of service benefit.
Banks publish fees and rates
The figure will be eight times the salary for Emiratis and they can also add other income.
The new law is also expected to set the maximum repayment term at 25 years or the borrower’s 70th birthday, whichever is soonest.
Employed expats will also have a 25 year term subject or their 65th birthday – whichever is soonest, while self-employed expats have the same 70-year-old limit as Emiratis.
The proposed new law would also impose transparency rules and would force the bank to publish fees and interest rates.
More importantly for borrowers, the EBA says the new law will protect borrowers, the banks, and after one spectacular property crash, the UAE’s economy.
