What is the Possible Effect of the UAE Mortgage Cap Law?

The UAE mortgage cap law, which has been in the pipeline to be implemented for some time, is a law set by the UAE central bank that limits the residential mortgage amounts allowed for both locals and expats. As per the planned law, which was announced in December 2012, and was subsequently revised in March of this year, UAE nationals seeking a mortgage would be limited to an 80% mortgage for first time buyers and 65% for each subsequent home. The same law sets the mortgage limit for expats at 75% for first time buyers and 60% for each subsequent home. The law is viewed as a safety net for the central bank in order to avert a similar global crisis as was seen and felt in 2007.

I’m sure you’re wondering what that really means for you as a prospective homeowner. It’s quite simple really, banks will only offer you a loan for up to 80% of the value of the property if you are a first time buyer and up to 65% for the value of any subsequent house. In other words, if the value of the house is say AED 100,000, as a first time buyer you are limited to a mortgage of up to AED 80,000, or AED 65,000 if it is for a second or third home. If you are an expat and you are seeking the same house as a first time buyer, you are limited to a mortgage of up to AED 75,000, or AED 60,000 if it is for a second or third home. The remaining amount is what the UAE Central Bank would require the mortgage seeker to put as a down payment or deposit.

For potential homeowners this could create a situation where cash becomes the all-important source of payment. According to Knight Frank, from Prime Global Cities Index, “The city (Dubai) is attracting demand from North African, Asian and Middle Eastern buyers. Many are cash buyers which may mitigate the impact of the prospective mortgage cap which is currently under discussion.” The Dubai Land Department, a government entity responsible for safeguarding property rights in the city, has noted that “Prices are being pushed higher without people overextending themselves with debt. Indeed it is largely being achieved without any debt at all and with around 80 per cent of transactions in cash.”

It may be a difficult pill to swallow, but the UAE mortgage cap law, if implemented, will theoretically safeguard everyone from another possible crisis and reduce the level of debt in the long run.

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