Wednesday, October 30, 2013

UAE Central Bank issues mortgage rules- No credit card for UAE property down payment

Home buyers will no longer be allowed to seek personal loans or use their credit cards to meet their down payment requirements, the UAE Central Bank has said.“Down payment required from the borrower (home buyer) of its own sources and not from sources of borrowing again, including personal loans or credit cards,” said the apex bank.
A number of investors, inspired by profit-making flippers, were applying for personal loans to meet down payment requirements.This meant that they were burdened with payments not only for the personal loan, but even for their mortgage. Most of these lost a fortune of their hard-earned money or chose to become defaulters as the global economic crisis lead to a slowdown in the UAE property market, post 2008.

“We know of a number of people who took personal loans to collect funds to pay the down payment.

“They were looking to flip, but the slowdown gave them no opportunity to get out of the market. They were stuck with their investment and the only way out was to default,” said a senior executive of a top property consultancy.
The Central Bank also clarified that monthly payment must be made from salary, or income from work that can be verified or rental income.
End of service dues will not be entitled to pay the mortgage, the Central Bank clarified.

Customers’ approval must in writing

Article (4) on disclosure and transparency states that  mortgage providers won’t be allowed to change or adjust their terms and conditions of the loan or facilities during the loans tenure unless the borrower agrees, in writing, to do so.

However, real estate consultants say home loan applicants are told to sign a whole bunch of documents, with one of the pages having clauses, which permits the bank to make any necessary changes to the contract.

Although banks inform customers of the change in interest rates, now the Central bank has made it mandatory that banks have to inform customers of any changes in interest rates, or commissions, or fees, at least two months prior to the application of those changes.

On Monday, the UAE Central Bank issued the new mortgage lending rule, which restricts banks to providing a loan of 80 per cent of the property value to Emiratis and 75 per cent to expatriates.

The new rules will be enforced one month after they are published in the official gazette.

Maximum loan-to-value ratio: Citizens of the UAE


First home
  •     If the property value is Dh5 million or less - a maximum 80% of the property value.
  •     If the value of the property more than Dh5 million - a maximum 70% of the property value.
  • Second and subsequent homes or investment property
    65% of the value of the property, regardless of value.
Maximum loan-to-value ratio: Non-Emiratis

First home
 
  •     If the value of the property is less than Dh5 million - a maximum 75% of the property value.
  •     If the value of the property more than Dh5 million - a maximum 65% of the value of the property.
  •     Second and subsequent homes or investment property
  •     60% of the value of the property, regardless of value.
Maximum period of the loan

    Maximum length of mortgage loan of 25 years.
    Maximum age of the borrower at the time of payment of the last installment 70 years for citizens and 65 years for non-citizens (or 70 years if the borrower works for the benefit of himself).

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