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Emirati banks will recommend mortgage loans be capped at 75 percent of the value for expats and 80 percent for nationals, Emirates Banks Association (EBA) chairman Abdul Aziz confirmed on Sunday.

Second mortgages would be capped at 60 percent and 65 percent for expats and nationals, respectively, under the recommendations to be presented to the UAE this week.

Properties yet to be completed would attract a 50 percent cap in a move designed to minimise ‘flipping’ – the rapid on sale of off-the-plan properties.

The EBA also is considering limiting the total value of an individual mortgage to AED25m (US$6.8m). Al Ghurair said such a limit would impact on only 2 percent of the total mortgage .

The recommendations are in response to a notice issued by the UAE Central on December 30 to cap mortgage -to-value ratios in a bid to prevent overheating the property market and to reduce defaults.

Al Ghurair, who is also CEO of lender Mashreq and chairman of International Finance Centre, said there had been an over-reaction to the notice and no decision had been made. He insisted the Central Bank was consulting with the EBA and that it wanted a consensus among banks.

“We received [the December 30 notice], but when we sought clarification they said this is a dialogue,” Al Ghurair said.

He said there was a general consensus among the EBA’s 51 member banks that there should be a cap on mortgage loan-to-value ratios but they were still discussing whether to set a maximum loan value.

“If an individual has a high income, why should you cap [the loan value]?” Al Ghurair said.

The maximum time period to pay back a mortgage also may be set at 25 years.

The EBA also will request the Central Bank speed up the establishment of a credit bureau, where every mortgage would be registered.

Al Ghurair said the changes were in the interests of protecting borrowers rather than banks.  “It’s important to know it’s a protection for the consumer, it’s not for the banks,” he said.

“Banks will survive a and developers will survive a … but ultimately we need to ensure the consumer is really guided.

“It’s important… that we put some guidelines on this.

“Some people say ‘no problem, I’m going to get this income from the future, I’m going to get that bonus’ and they over spend on their dream house and they end up unable to pay.”

He did not believe the changes would impact the property market.

“People have speculated that it will be negative to real estate, [but] 70 percent of the real estate sales [are] on a cash basis so it’s going to impact 30 percent [of the market],” he said.

Al Ghurair said ahead of any decision by the Central Bank, lenders were acting individually, according to “what they think is right for them”.

He said any new policy should be revised “as the market changes”.

“We believe this is a dynamic and it should not be a static policy and it should be revised as and when the market changes,” he said.

“If real estate overheats and there’s a potential [for an] explosion in the real estate market maybe we can further regulate it to protect everybody and when we want to stimulate the real estate market we can relax it.

“We may only tweak it.”

Al Ghurair expected another round of negotiations with the Central Bank before it made a final decision, which would likely be introduced in the second half of the year.


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