Lending for homes may become harder to find

Central bank mulls raising minimum for down payments, which could make it harder to afford a mortgage.

The tightening of credit is leading home financiers to reassess their lending strategies, while the central bank is discussing plans to increase the amount of money that borrowers will have to find before they can buy a house. Lenders are considering reducing the amount they will lend to 70 or 75 per cent of the purchase price. With a glut of new properties coming to the market, any restrictions on loans could be quite a blow to the market.

"Amlak Finance was asked for feedback from the central bank regarding the possibility of amending the financing cap of 90 per cent, but no directive was taken," said Arif Alharmi, the chief executive of Amlak, the largest home loan provider. "The same feedback was sent to all other banking and finance institutions." The property market has been growing rapidly, pushing up property and rental prices and raising fears that the sector is overheating.

The latest developments are a further sign that the international credit crunch has now spread to the GCC, a year after starting in the West, with lines of credit shutting down and only those home buyers with substantial deposits being offered loans. The problem is particularly acute for banks who rely on the money markets to provide much of their funding, with falling deposits and rising lending this year hitting their liquidity.

"Banks who have been prudent in their lending policies are still financing but on higher interest and lower financing limits," said Sharjeel Hassan Vijdani, the head of corporate credit at Habib Bank Zurich. "It clearly depicts there are problems with the liquidity supply in the market." Amlak said that it had not been affected by the current liquidity crunch and was moving forward in achieving its projected business and profit growth. "We are, however, being selective in the financing transactions and focusing on ones that meet the securitisation criteria," said Mr Alharmi, adding that a cautious and selective approach would have a better effect on the market in the long run.

Tamweel insists it has no problems with its funding, but is likely to change its emphasis, focusing more on middle-income housing and villa financing. "High-end and luxury units are out of the picture," said Nabil Abu Alwan, the head of marketing and product development at Tamweel. He added that Tamweel was interested in tapping the central bank's Dh50 billion (US$13.6bn) promised pool of credit, which was announced at the beginning of the week.

"Would we like to dig into that Dh50bn pool? Yes, we would like to, as Tamweel is always looking for financing options," said Mr Alwan. "We welcome the central bank's move. It will help increase the market confidence." He confirmed there was a strain on liquidity in the market as some of the local and foreign banks had exhausted their budgets for financing, but said Tamweel would continue to lend.

"Mortgage is one of their products, but for us it is the core business. If we stop financing, the business dies," he said. Venkatesh Srikantan, the regional head of assets and liabilities at HSBC Middle East, said that "as a responsible lender" it was important its products were "sustainable" for the bank and its customers. As a result, HSBC has reduced the percentage amount it lends out on properties, which it decides on a customer-by-customer basis. "Reducing our loan-to-value ratios across our approved list of properties will help to ensure that customers receive loans that they can afford to repay at a time of considerable uncertainty around the world," he said.

Despite the tightening of mortgage availability, Standard Chartered said yesterday it was entering Abu Dhabi's property sector by offering mortgage services to Aldar's customers. "We see the Abu Dhabi market as different to Dubai's," said Jeremy Parish, the chief executive for Standard Chartered in Abu Dhabi. "Dubai was earlier on the curve, so prices in Abu Dhabi are likely to remain buoyant. Interest rates are between six to eight per cent and there has been an upward trend."

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