The country's biggest bank has urged a rethink of the Central Bank's plan to cap local and expatriate mortgages.
Amid a property industry backlash, National Bank of Abu Dhabi (NBAD) said it was surprised with the "sudden decision".
The Central Bank’s plan appears to have created confusion in the market. A note from Bank of America Merrill Lynch to clients this week said: “We have spoken to mortgage departments of a few banks who are all seeking clarity from the [Central Bank] … this is likely to have an immediate impact on mortgage lending going into the new year.”
NBAD, which has a market capitalisation above Dh39 billion (US$10.61bn), and other lenders were taken by surprise this week when the central bank introduced loan to value limits on mortgages.
“We were not part of this decision making,” said Abdullah Al Otaiba, the senior general manager of domestic banking at NBAD.
“We would like to understand what is the benefit of such a decision in a market that is about to recover.”
Under the Central Bank’s new plan, expatriates would only be able to borrow up to 50 per cent for the first house and 40 per cent for any further properties, while UAE nationals could borrow up to 70 per cent for the first house, and 60 per cent after that.
The plan to cap mortgages is part of a wider reform that will distinguish ordinary home purchases from buy-to-let investments.
House prices soared before the market collapsed in late 2008. Speculators buying and selling property beyond their means were partly blamed for the collapse.
“The regulations aim to protect both lenders and consumers’ rights,” a UAE Central Bank said this week. The regulator was unavailable for comment yesterday.
The Central Bank’s move comes as bad loan provisions declined for the first time since the Dubai property crisis, and amid a delay in new regulations to cap lending to government and government-related entities. Provisions fell to Dh65.3bn at the end of October, from Dh65.4bn in September, according to statistics provided by the Central Bank in December.
The Central Bank postponed a decision to curb government lending after the country's two biggest banks, Emirates NBD and NBAD, did not meet the September deadline to comply with the new rules.
The latest decision by the Central Bank is expected to impact the broader banking and mortgage market, bankers and brokers said.
The rule change is “a massive deal”, said Mario Volpi, the head of residential sales and leasing at Cluttons in Dubai. “In the short term, it means that people won’t buy. People thinking about buying will have to pay larger deposits.”
Investors who buy properties with cash would benefit. “They will start bargaining a little harder with the seller,” Mr Volpi said.
"Sellers at first will not come down but as weeks become months they will do. Cash is king for now."
* additional reporting by Lianne Gutcher
Clarification: According to the UAE Central Bank, the new limit on mortgage borrowing for expatriates is 50 per cent for the first property and 40 per cent for subsequent properties, not 60 per cent and 50 per cent as originally stated in this article. This story was amended on January 6 2013.