Loan to Value Ratio Changes to help First Time Buyers

Loan to Value Ratio Changes to help First Time Buyers

The Central Bank of the UAE (CBUAE) will increase by 5 percentage points, the loan-to-value (LTV) ratios applicable on mortgages for first-time home buyers, ensuring that houses are affordable without associated inherent risks.

Loan to Value Ratio Changes

A separate measure from the central bank increased loan-to-value ratios applicable on mortgage loans for first-time buyers by 5 percentage points.

"This is positive news for first time buyers as the biggest challenge is the cash required upfront to complete on a purchase," says Gareth Davies, senior property consultant at Keller Williams Real Estate.

Under the new measures, the upfront cash deposit required to buy a property has decreased to 20 per cent from 25 per cent for first time expatriate buyers and from 20 per cent to 15 per cent for Emiratis.

It is not yet clear whether this is for all properties including purchases over Dh 5 million. The expectation is that the banks will apply this immediately.

It will give that extra push to first-time buyers who may have been thinking about taking the plunge into owning real estate. It is too early to assess if this move is temporary or whether it will become standard policy for the foreseeable future. Either way, it should be a shot in the arm for the property market, especially the secondary market.

Another Change Affecting Real Estate

The CBUAE will also revise the existing limit which sets the maximum exposure banks can hold towards the real estate sector. Banks will be allowed to scale the exposure to 30 per cent on reaching 20 per cent of their loan portfolio (measured by risk-weighted assets). However, in that case, banks will be required to hold more capital.