What are the key mortgage regulations set by the UAE Central Bank?

The UAE Central Bank has laid down elaborate rules to govern the mortgage market in the UAE to avoid any irregularities and to provide a stable and fair market to the customers. These regulations are rather important to prevent distortion of the real estate market as well as to safeguard the interest of both the lenders and the borrowers. Here are the key mortgage regulations set by the UAE Central Bank:

Loan-to-Value (LTV) Ratios

The LTV ratio is another key factor that is used in helping to calculate the maximum amount of credit that the bank is allowed to advance to the borrower vis-à-vis the value of the property offered as security. The UAE Central Bank has set specific LTV limits based on the borrower’s profile and the property’s value:

For UAE Nationals:

  • First property valued at AED 5 million or less: Please Complete: Best Loan to Value as follows: Maximum.
  • First property valued above AED 5 million: Loan to value or LTV is up to 70% of the property’s market value.
  • Second or subsequent properties: Maximum loan to value of 65 percent.

For Expatriates:

  • First property valued at AED 5 million or less: Loan-to-value ratio up to 75%.
  • First property valued above AED 5 million: LTV Established Up to a Maximum of 65%.
  • Second or subsequent properties: LTV has been noted to be at maximum 60 percent​

Debt Burden Ratio (DBR)

The second important regulation also calculates the likelihood of borrowers going deeper in debt with the Debt Burden Ratio. The maximum DBR is provided at a cap of 50% of the borrower’s gross income. This means the total monthly installment of all debts as well as the new mortgage payment should not go beyond 50% of the borrower’s monthly pay. Lenders have to use interest rates of as high as at least 2-4% higher than the current interest rate in the testing of the loan so as satisfy the borrowers abilities of repayment in case of the occurrence of a fluctuation in the interest rates.

Down Payment Requirements

The borrower is expected to contribute from his own sources and hence is needed to make down payment. Down payment cannot be paid using loans, credit card and anything that entails borrowing in anyway. Thus, the borrower has substantial interest in the property value and therefore has the means and incentive to rein in default risks.

Some of the topics that have been covered include Due Diligence and Collateral Management.

Mortgage lenders are obliged to do vast research on the borrower and his/her ability to pay back the loan. This also involves, independent property valuations that are carried out by professional valuators in order to get credible property appraisals. There is also a required aspect of managing collateral for any credit facility to ensure that s/he factors in such considerations that may negatively impact on the value of the property.

Interest-Only Loans

Like the interest-only mortgages where a borrower pays only the interest portion of the loan, lenders have to ensure they confirm whether the borrower can make the full payment of the loan once they through with the interest-only period. This means that one cannot use potential appreciation in value of the property or future growth in the income to determine the ability of the borrower to repay the loan.

Regulation of Mortgage Providers

The Central Bank lays down strict guidelines that all mortgage providers must meet in terms of their internal risk management as well as their compliance. This includes things such as having a written program of due diligence which has to be conducted during the mortgage application process.


Quiz: Key Mortgage Regulations Set by the UAE Central Bank

Test your knowledge based on 95dubai.com

1. What is the maximum Loan-to-Value (LTV) ratio for UAE nationals for a property valued at AED 5 million or less?



2. What is the Debt Burden Ratio (DBR) limit set by the UAE Central Bank?



3. Are borrowers allowed to finance their down payment through loans or credit cards?



4. What must lenders ensure for interest-only mortgages?



5. How should mortgage lenders handle property appraisals?