Dubai Islamic Bank and the Mohammed Bin Rashid Housing Establishment have signed an agreement to finance up to the full value of Emiratis' mortgages on new property purchases.
The bank said it would provide Emiratis in Dubai with financing up to 100 per cent of the value of properties up to Dh2 million for tenures of 25 years.
The Mohammed Bin Rashid Housing Establishment provides land grants and financing to nationals in Dubai for the purchase of subsidised housing.
After Dubai's property crash, banks adhered to voluntary constraints on the amount of financing they provided to mortgage customers. A higher loan-to-value ratio amplifies risk for both the bank and customer if property values fall sharply.
But Dubai Islamic Bank's conservative underwriting practices and the stringent screening criteria of the Mohammed Bin Rashid Housing Establishment meant that the agreement would lower the risk of mortgage lending for the bank, said Sam Wani, the general manager of Independent Finance, a mortgage consultancy. Offers to fully finance property purchases with mortgages were not uncommon, but limited in practice, he added.
Last year, Emirates Islamic Bank said it would offer 100 per cent financing to nationals. Abu Dhabi Commercial Bank and Abu Dhabi Islamic Bank have offered 100 per cent financing for properties on Saadiyat Island.
Few 100 per cent mortgages, if any, have been signed since the financial crisis, Mr Wani said: "You can rest assured that clients getting this mortgage would be very few in number."
The UAE Government has become increasingly concerned about financial literacy among Emiratis as banks warn that regularly bailing out indebted citizens encourages them to take higher risks.
In December, the Central Bank drew up proposals for a cap on mortgages, under which nationals could fund no more than 70 per cent of first-home purchases via mortgage loans and 60 per cent of any subsequent buys. The rules remain under discussion at the Central Bank.
* Gregor Stuart Hunter
