UAE banks urge mortgage cap delay as homebuyers cancel deals

Take our poll: Lenders will ask the Central Bank to delay limits on mortgage borrowing which have changed the UAE from a 'seller's market to a buyer's market overnight' say bankers.

Customers browse the selection of property ads posted at the Better Homes office in Dubai. Lauren Lancaster / The National

UAE lenders will ask the Central Bank to delay for one month the introduction of limits on mortgage borrowing, bankers said yesterday, as uncertainty over the new rules hits activity in the country's property sector.

The Emirates Banking Association, which consists of representatives of lenders across the UAE, will send a letter to the Central Bank asking for a 30-day extension for the application of a new regulation that caps mortgage lending to borrowers.

Under the Central Bank's new plan, expatriates would only be able to borrow up to 50 per cent of the value of the first house and 40 per cent for any further properties, while Emiratis could borrow up to 70 per cent for the first house, and 60 per cent after that.

"The regulations aim to protect both lenders and consumers' rights," the UAE Central Bank said last week.

The association said it would also arrange to hold a meeting this week of its subcommittee, which includes heads of retail operations to review the new rules and agree any adjustments they will seek from the Central Bank.

However, lenders were yesterday unable to reach consensus on an ideal loan-to-value (LTV) rate to recommend to the Central Bank.

"It's difficult to get a number of banks to agree in a single meeting. We understand the spirit of the regulations, but feel there could be a much better way to do this," said a banker who spoke on condition of anonymity.

Tamweel, the Islamic mortgage provider, fell 4.2 per cent to 37 fils a share yesterday because of uncertainty over the new rules.

Almost 25 million of its shares changed hands on the Dubai Financial Market.

"Tamweel's business going forward is going to be impacted," said Tariq Qaqish, the deputy head of asset management at Al Mal Capital in Dubai. "It'll affect their growth potential." Meanwhile, the country's biggest property broker estimates it could lose as much as a quarter of its trade if new mortgage lending caps stand.

Other brokers have reported an even sharper rise in the number of deal cancellations as buyers who saved to fund property purchases found themselves without enough money to put down as a deposit.

"Based on what we have seen over the last four or five days, if the new law is not amended, we expect our sales rates to fall by between 20 and 25 per cent," said Ryan Mahoney, the chief executive of the Dubai-based estate agent Better Homes.

"The new rule will have a significant impact on our business. At a deposit rate of 50 per cent, the vast majority of end users won't be able to afford to buy so it really depends what proportion of buy-to-let investors can afford to put 50 per cent down or perhaps bridge it with a personal loan."

For firms specialising in selling luxury homes in Dubai it was a bleak New Year. They say that business dried up overnight after the Central Bank announced its surprise new measures.

"We saw the impact on our business with immediate effect," said Jackie Johns, the general manager at Dubai Luxury Homes. "Between December 31 and January 1 we lost 80 per cent of our buyers. The market has changed instantly from a seller's market to a buyer's market overnight. Before, we had many buyers and not enough stock. Now it's totally reversed.

"For buyers who have already gone out on viewings and made a shortlist and scraped together a 20 per cent deposit, it was very harsh."

She added: "Even those who have the money for a 50 per cent deposit or more are not buying because they think that prices will go down.

"Even cash buyers are demanding lower prices because they think they can go in for the kill. People think that if the banks don't have confidence in the Dubai market then neither should they."

Other agents tell a similar story of deals that have fallen through over the New Year period as a result of the new lending limits.

"We came back from our holidays on January 2 to find that we had already missed out on two sales which were in negotiations and then we had another two separate people ringing up to say that they were cancelling viewings because they could no longer afford to buy. That's arguably four deals we've missed out on the first day," said Mario Volpi, the head of sales and leasing at Cluttons' Dubai office.

"If the [central] bank does not change this new rule we could see sales volumes falling by about 25 per cent this year."