Mortgage rules add problems for borrowers

The Central Bank's new rules on mortgages are welcome - but some advance warning would have been preferable.

In its zeal to protect the economy from a new residential property bubble, the UAE's Central Bank has imposed stringent new rules on mortgages. But some experts are already saying the changes may make conditions more difficult, just at a time when property markets seem to be starting their long-awaited recovery.

In the US, too-easy credit terms for mortgages, in the years before the 2008 crash, moved millions of families from rented flats into homes. Unfortunately, however, many of these mortgages were taken out by borrowers cynically described by the acronym "ninja" - as in "no income, no job (or) assets". When interest rates climbed, countless "subprime" mortgages went into default - and the whole credit system tottered.

A good defence against this danger is a high down-payment requirement - 20 or 30 per cent or more - and limits on the length of mortgages. That's what the Central Bank has done. Emiratis can now get mortgages for no more than 70 per cent of the value of a first home; for expatriates the figure is 50 per cent. For additional homes - bought for investment, not as residences - the limits are tighter still. Other new rules limit the length of a mortgage and other details.

The prudent intent of these changes is evident. But nobody likes an expensive surprise, and the abrupt revelation of these new rules on New Year's Eve threatens to be a real hardship, especially for anyone currently negotiating or renegotiating a mortgage.

In any case, the UAE's property-market problems in and after 2008 were not the same as the US subprime crisis; here, as The National's Sean Cronin noted in our business section yesterday, the difficulties had much more to do with multiple-unit speculative purchases. Measures to control any recurrence of the perils of those practices, as the market revives, are still needed.

In every country, government has a duty to protect the economy from damaging boom-and-bust cycles. But investors - from tycoons to first-time home buyers - hate uncertainty and abrupt changes of policy, which can undo the most careful corporate or family plans.

As the UAE's economy and financial system grow and mature, the ability to articulate policy in advance will be an important asset in building up the public confidence so vital to any economy.

Clarification: According to the UAE Central Bank, the new limit on mortgage borrowing for expatriates is 50 per cent for the first property, not 60 per cent as originally stated in this article. This story was amended on January 6 2013.