UAE Mortgage Rule May Hurt Those it Intends to Protect


The New Year will bring little cheer to house hunters who, as they ushered in 2013, will have learned they may need to double their deposits as a result of a new mortgage lending cap, writes Sean Cronin of The National.

Regulation can move like a pendulum—overcorrecting weaknesses in a market and creating further structural weakness in the process. The enforced cap on loan-to-value ratios threatens to do just this, analysts observe.

It emerged this week that expatriates will only be able to borrow up to 60% for their first home purchase and 50% for subsequent purchases. At the same time, financing for Emiratis was limited to 70% for the first home and 60% for further properties.

The move will hit the very people it aims to protect—home buyers saving for deposits to buy houses they want to live in. The aim may have been to protect the market from the excesses and exuberances of the past. But it is unlikely to achieve that outcome.

A note from Bank of America Merrill Lynch to clients this week makes this point, warning that loan to value limits are likely to affect end-user affordability instead of curbing speculation.

The New Year's Eve news would have landed like a bombshell for anyone in the process of buying a home, and to a lesser extent anyone even thinking about it. For the investor buying an average three-bedroom villa in Dubai for Dh2.7 million ($735,094) this change would mean finding an additional Dh400,000 under the mattress.

Many mortgage-financed purchases will simply fall through—hitting prices and derailing a recovery that was beginning to boost consumer confidence in the wider economy.