People in the UAE take on debt for different reasons, such as investments, property acquisition, school fees, or even to fund lifestyle purchases. However, the affordability checks put in place by regulators may result in some consumers being unable to access additional funds.
AJ, a UAE resident, and his wife took out a joint mortgage to buy a property in Dubai last year. Fifteen months after taking the mortgage, the couple wanted to borrow money to renovate the property.
However, they found out the Etihad Credit Bureau and the Central Bank of the UAE added the joint mortgage to both of their credit reports, which caused liquidity problems.
“We both earn good salaries, have a mortgage, a personal loan, a credit card each and a car loan. Despite our available and disposable income, the debt-burden ratio due to mathematical overcalculation means that we cannot access any form of credit other than what we already have,” says the British citizen, who has been in the UAE for 13 years.
A customer’s debt-burden ratio (DBR) is the ratio of their total monthly payments to their total income. This number is used by banks to calculate their eligibility for finance and credit cards.
The couple’s mortgage, personal loan and car loan accounted for about 55 per cent of AJ’s personal income. But once his wife's income was added, the debt accounted for only about 33 per cent of their joint income.
“My credit score is over 750 and I have never missed any form of payment. Because of this anomaly [in the DBR], the mortgage now accounts for 75 per cent of my wife’s wage, although the central bank caps the debt-burden ratio at 50 per cent," AJ says.
The Central Bank of the UAE has strict regulations regarding the DBR, which is capped at 50 per cent of an individual’s or a couple’s combined monthly income. This regulation ensures that no more than 50 per cent of a person's monthly income is allocated to debt repayments, including loans, credit card payments and mortgages.
Banks check a person’s credit score to determine their DBR ratio, which indicates their current liabilities.
The Etihad Credit Bureau, which was set up in 2014, provides a credit score in the Emirates. It is a three-digit number that indicates how likely customers are to make their payment obligations on time based on their past payment behaviour.
The credit scores range between 300 and 900, with a higher score meaning a lower level of risk, the bureau's website says. For instance, if a customer’s score is 300, it means they have defaulted on a range of payments, such as a mobile phone bill, a loan instalment or a credit card payment.
On the other hand, a high score means a customer’s credit behaviour reflects a lower risk, which translates into easier availability of credit cards and faster loan approvals.
However, AJ says a request to his bank to increase the limit on his existing credit card was denied, despite having the available monthly income to either service debt or seek new debt for spending.
“We were able to liquidate some things we had in the UK and access some finance my parents provided us with," he says. "Otherwise, we wouldn't have been able to renovate our house at all."
The couple eventually had to use credit card instalments “that in some cases were four times the amount that we would have to pay back on a personal loan had we been able to access it”. This is because of the shorter duration over which credit card instalment plans have to be paid off.
It came to a point that, apart from their income, the couple only had Dh700 ($190.60) in available credit, AJ says.
However, a representative from the Etihad Credit Bureau customer support team says: “While it's understandable that the couple is facing challenges due to the reflection of the joint mortgage on both individual credit reports, it's important to note that this is a common practice among credit bureaus worldwide, especially when it comes to joint accounts."
This approach allows lenders to assess the creditworthiness of each person, considering their income, existing debt and other financial factors, the bureau says. “When a joint account, such as a joint mortgage, is established, both individuals assume equal responsibility for the debt. As a result, the entire debt is typically reflected on each individual's credit report.”
Joint credit facilities will appear on the individual credit report of both people, according to the bureau's website.
associate at BSA Ahmad Bin Hezeem & Associates
Any further lending decisions are ultimately subject to the policies and procedures of the respective lenders. Each lender may have their own criteria and processes for evaluating creditworthiness, which can influence the final lending decision, the agency says.
Maroun Abou Harb, associate at law firm BSA Ahmad Bin Hezeem & Associates, suggests the couple's first step should be to understand the reporting structure for joint accounts with the Etihad Credit Bureau. The couple could contact the bureau for any clarifications in this regard, he says.
"Given that the joint mortgage appears in full on both credit reports, the DBR may currently be calculated higher than expected," Mr Abou Harb says. "Although the credit report structure may not change, the couple should still consult with lenders to ensure that their DBR is calculated in line with their combined income.
"Central Bank Circular No 29 of 2011 outlines DBR regulations, stipulating that total deductions from salary or regular income for all loans must not exceed 50 per cent of gross income."
If DBR or other financial access issues remain, the couple should consider reviewing the structure of their mortgage. They might explore refinancing options to restructure their debt obligations, he suggests. For instance, splitting the mortgage differently or negotiating a more favourable lending agreement could help reduce overall credit exposure, he adds.
If financial institutions continue to deny credit despite the couple's responsible financial profile, they can file a complaint with the Central Bank of the UAE.
"The Central Bank ensures that financial institutions adhere to consumer protection laws, which prohibit unfair treatment based on inaccurate financial assessments," Mr Abou Harb says. "Under Federal Law No 14 of 2018, the Central Bank provides mechanisms for consumers to file complaints related to financial practices. This avenue can help the couple seek fair assessment and remediation if lending decisions appear based on misaligned DBR calculations."
Meanwhile, Ludmila Yamalova, managing partner at law firm HPL Yamalova and Plewka, says that in cases of joint mortgages, the loan value may appear in full on both people’s credit reports.
"Any payment towards the mortgage improves both their credit score, and, similarly, any failure to pay also negatively impacts both their scores," she says. "It is natural for a credit score to decrease when a debt appears. As they make payments, however, their credit score will improve. They may be able to access various lines of credit at that point."
