Mortgage limits for expats and Emiratis recommended by UAE banking bosses

Mortgage cap: Emirates Bank Association recommended that mortgages be capped at eight years' income for Emiratis, and up to seven years' income for expats.

Recommendations for how much expat and Emirati homebuyers can borrow have been put to the Central Bank. Pawan Singh / The National

Mortgages in the UAE should be limited to seven years income for expatriates and eight years income for Emiratis, banking chiefs have recommended.

The Emirates Banks Association has put forward a series of suggestions to the Central Bank on how best to regulate mortgages amid proposals to cap the amount that can be lent to homebuyers and investors.

Responding to a questionnaire distributed by the Central Bank on how the controversial cap should be implemented, the EBA recommended the maximum mortgage repayment period should be 25 years, with the final installment coming before an Emirati home buyer reaches the age of 70 and before an expatriate turns 65 and is forced by law to leave the country.

Mortgage repayments should be adjusted upon retirement and rescheduled if necessary, if payments exceed half of an individual's income.

End-of-service-benefits should not be included in the calculation of how much a person can borrow.

For first time buyers, the EBA reiterated a previous recommendation that the mortgage cap should be set at 75 per cent of a property's value for expatriates and 80 per cent for UAE Nationals. This limit would tighten to 65 per cent for UAE Nationals and 60 per cent for expatrs for purchases of second properties.

The EBA also dropped plans to cap lending to buyers of properties under construction.

Previously, the industry lobby group said that it would recommend a cap on so-called "off-plan" financing at 50 per cent of a property's value.

The group said talks so far had demonstrated a degree of "cooperation between the Emirates Banks Association and the Central Bank to protect borrowers, the banking sector and the national economy," it said in a statement announcing its recommendations.

In December, the Central Bank distributed a circular to lenders stating that mortgage loan-to-value limits should be capped at 50 per cent for expatriates and 70 per cent for Emirati mortgage buyers.

After initial purchases, the limits would be tightened to 40 per cent for second homes for expatriates and 60 per cent for UAE Nationals. Previously, no limit had existed, which some in the industry had worried was feeding into a property bubble as the real estate market recovered last year.

The circular sparked a panic among banks, who feared the loss of their home lending business, and real estate agents, who said mortgage transactions dried up almost overnight.

Under pressure from commercial lenders to lower the cap because of the potential economic damage, the Central Bank backed down last month, saying that a "misunderstanding" had taken place and the circular was intended as the beginning of a consultation.

The EBA said last month in response that it was recommending that mortgages for properties under construction - also known as "off-plan" financing - be capped at 50 per cent of a properties' value. An EBA spokesman said this recommendation had not been sent to the Central Bank.

Off-plan property sales created many of the most bitter legal battles of Dubai's property crash, with lenders, developers and prospective home owners affected as swathes of projects stalled in the midst of the global financial crisis

During the first nine months 2012, total mortgages in the UAE grew by 0.1 per cent to Dh161.7 billion. Real estate agents say the housing market has been dominated by cash sales, with banks struggling to attract enough new mortgage customers to replace existing loans being paid off.