Central Bank and lenders reach accord on UAE mortgage cap

Mortgage cap: New mortgage lending limits will do little to prevent the housing market from overheating, property experts warn

A sold sign outside a villa in the Springs in Dubai.

The Central Bank and lenders have reached an agreement on limits to mortgage lending for Emiratis and expatriates.

Under the rules, which are expected to be officially announced soon, the mortgage cap for first-home buyers will be set at 80 per cent of the purchase price for UAE nationals, and 75 per cent for expatriates.

Central Bank officials agreed to introduce proposals from the UAE Banks Federation at a meeting in Abu Dhabi on Wednesday.

Second and third-home loans for Emiratis will be capped at 65 per cent of the purchase price. For expatriates, that figure will be 60 per cent.

Abdulaziz Al Ghurair, chairman of the UAE Banks Federation and chief executive of Mashreq Bank, yesterday said the regulator had widely accepted the proposals on the mortgage cap made by member banks.

"The Central Bank has broadly agreed in principle to the fine-tuning proposals we made and an agreement could come in the second half of the year," Mr Al Ghurair said.

"There will be a further meeting of the working group of banks and the Central Bank next week."

The regulator's earlier proposals, distributed to lenders in a circular in December last year, set lending limits of 70 per cent for initial purchases by expatriates.

That unsettled property owners who feared the new rules would send prices tumbling.

But with about 70 per cent of all house sales completed last year paid in cash, brokers say the proposals will not curb speculation.

Property experts say the measures are unlikely to prevent any house price inflation, such as that which sent Dubai villa prices up by more than 23 per cent last year, according to figures from the property broker Asteco.

"These new rules seem quite sensible as the market has had four months to accept the idea that a mortgage cap is coming and they are set at sensible levels," said Mario Volpi, head of residential sales and leasing at Cluttons Dubai.

"However, the real problem isn't owner-occupiers buying homes to live in, it's property speculators who purchase with cash in the hope of making a quick profit.

"We have been seeing some sellers saying that they will only accept offers from cash buyers."

Craig Plumb, head of research at Jones Lang LaSalle's Dubai office, said the limits would not have drastic effect on the sector.

"We don't believe that this will have much impact on the property market because the limits are not too different from what was generally available before," Mr Plumb said.

"It shows the intent of the Central Bank to monitor the situation and that they don't want the same sort of problems we witnessed back in 2008 and 2009.

"We are still hopeful that people have learnt their lessons from then but we are currently seeing danger signals that some lessons have not been learnt."

Mr Plumb added that with many developers offering their own assisted payment plans, reliance on mortgages this year will probably be reduced even further.