UAE mortgage rules: loan-to-value caps and the debt burden ratio

The Central Bank of the UAE puts a ceiling on how much a bank may lend against a home. Where that ceiling sits depends on the borrower's nationality, the value of the property, and whether it is being claimed as a first home. The rules are in Circular No. 31/2013, Regulations Regarding Mortgage Loans, issued under Articles (5), (18), (94) and (96) of Union Law No. 10 of 1980. They have been amended twice. The text now in force is version 2, dated 8 April 2020.

For most applicants the loan-to-value cap is not what refuses the application. The debt burden ratio is. Someone can sit comfortably inside the 80 per cent band on the property and still fail, because the instalment, once stress-tested, takes total monthly deductions past half of gross income. A third test runs alongside both, limiting the loan to a multiple of annual income. All three have to clear.

The caps as they stand

Article (3) sets out the maximums, and the circular is explicit that they are maximums rather than entitlements. Lenders are told to adopt more conservative ratios where risks in a lending market, or a segment of it, run higher. The first-home bands were raised by five percentage points on 8 April 2020 by Central Bank Board of Directors' Resolution No. 31/2/2020. Each borrower can claim the first-home band once.

The second-and-subsequent figures apply regardless of value. There is no upper band for them and no relief for a modest second flat.

Exactly five million

Read the consolidated Article (3) closely and a gap opens. For UAE nationals the lower band reads “less or equal to AED 5 million”. For expatriates the same page reads “less than AED 5 million”, while the upper band reads “more than AED 5 million”. A property valued at precisely AED 5,000,000 falls in neither expatriate band.

The amending resolution does not have the problem. Resolution No. 31/2/2020 replaced paragraph (B.a) with wording that reads "less or equal to AED 5 million", matching the national bands. That resolution is the instrument that was issued and gazetted. If your valuation lands on the line, work from the resolution text rather than the consolidated summary page.

Off plan is capped at half

Anything bought before completion is treated as a single category.

Nationality does not move it. Nor does a first-home claim. A UAE national buying a first home off plan sits on the same 50 per cent as an expatriate buying a fourth investment unit. The circular also governs how construction money leaves the bank. The borrower's own equity portion of the price goes to the developer or contractor before any loan monies are released. Payments after that follow prescribed completion milestones, each physically confirmed by the lender or by a qualified professional agent independent of borrower and developer.

The deposit has to be the borrower's own money

Article (2) requires the down payment to be drawn from the borrower's own resources and not from other sources of borrowing, personal loans and credit cards included. Valuation is fenced off as well. Before any irrevocable commitment to lend, an independent on-site valuation must be carried out by a professional third party independent of the borrower, the seller, the developer or contractor, and the loan decision process. Valuers come from a board-approved list. Appraisal reports may not reflect expected future house price appreciation.

The debt burden ratio is the harder test

The 50 per cent figure does not originate in the mortgage circular. It comes from Regulation No. 29/2011 on bank loans and other services offered to individual customers, whose Article (7) caps deductions across all loans and facilities at half of gross salary and any regular income from a defined and specific source. Notice No. 22/2017 confirmed that mortgage instalments sit inside that same ceiling. Car finance, credit card repayments and any personal loan eat into it first.

The mortgage circular then layers conditions on top of that arithmetic.

• The loan must be stress-tested at 2 to 4 percentage points above the current rate of interest, the position in the rate cycle deciding where in that range to sit.
• Where an introductory rate applies, the stress test runs on the rate that follows it.
• On an investment property, at least two months' rental income is deducted from the calculation to allow for non-rental periods.
• Only reliable and sustainable income counts. Bonuses and other non-standard income are discounted, or excluded where not guaranteed.
• The assessment may not rest on future price appreciation or on expected growth in the borrower's earning capacity.

There is a hard multiple as well. Article (3) limits the financing amount to eight years of annual income for a UAE national and seven years for an expatriate. It rarely binds at modest loan sizes, then binds abruptly at large ones.

Retirement is handled inconsistently across the two texts. The mortgage circular requires that, where the schedule extends beyond expected retirement age, the balance outstanding can still be serviced at a debt burden ratio of 50 per cent of post-retirement income. Regulation No. 29/2011, at Article (7)(b), says something else. Where repayment extends to retirement age, the lender must schedule reductions so that only 30 per cent of the income or pension salary is deducted. Both remain in force. If your repayment tail runs past retirement, ask which figure the lender is using.

Term, age and the interest-only window

The maximum tenor is 25 years. There is no longer a Central Bank age limit. Resolution No. 96/By Circulation/2019 removed the maximum age at the time of the last repayment, regardless of nationality, and handed the question to the lender to set under its own risk management and lending policies. The answer for a 58-year-old is institutional rather than regulatory.

Deferred principal is narrower than most people assume. An interest-only period is permitted only on investment loans, and principal cannot go unrepaid for longer than five years from first drawdown. Repayment must come from salary or from verifiable business or rental income. End of service benefit is not an allowed source. Principal and interest repay on a reducing balance, at a frequency of not less than quarterly.

Guaranteed housing programme loans

Article (5) carves out government housing programmes. Where a loan advanced to a UAE national to construct or purchase a property for owner occupation under a local housing programme is guaranteed, the maximum debt burden ratio rises to 60 per cent, and the maximum loan-to-value may be increased to 85 per cent where the property is valued at AED 5 million or less. Where a first charge cannot be created on such property, lenders are asked to protect the collateral by other means, a second charge included.

The costs sitting outside the loan

Loan-to-value is measured against the appraised value of the property. Transaction costs fall outside it, and because the deposit may not be borrowed, they have to be found in cash alongside it. Registering the mortgage with the Dubai Land Department costs 0.25 per cent of the mortgage value for an ordinary mortgage against an ordinary or usufruct title deed, plus AED 250 for issuance of the title deed and AED 10 each for the knowledge and innovation fees on every drawing.

On the lending side, several charges are capped by the fee annexure to Regulation No. 29/2011.

Circular No. 31/2013 limits charges for refinancing with another institution, or for early repayment, to the actual cost to the lender of breaking a fixed loan plus the fees set out in Regulation No. 29/2011, and says nothing should impede a borrower from refinancing. Terms cannot be altered during the tenor without the borrower's written agreement. Changes to commissions or fees need at least two months' notice. The borrower signs every page of the loan documentation.

After signature, the Consumer Protection Standards give a cooling-off period of five complete business days, with the decision to reject or to seek an amendment falling due by the sixth business day. Withdraw inside that window and related fees are refunded, net of reasonable and direct costs already incurred that were disclosed in advance and in writing.

Article (8) reserves to the Central Bank the right to alter any of these ratios, across the market or for a single lender, and says it will be mindful of schemes or vehicles set up to circumvent the regulations.