(MENAFN - Khaleej Times) The Central Bank of the UAE has sent a questionnaire to banks and financial institutions in the country seeking their opinions on maximum limit on loan-to-value, or LTV, on home loans and its other procedural aspects.
The central bank has asked six detailed questions revolving around the mortgage financing in order to gather information on the different technical aspects, so that it can expand the scope of consultations on the mortgage.
The move comes after the central bank's new directions on the cap on LTV did not get applause from the banking and financial industry.
On December 26, 2012, the assistant governor for banking supervision and examination, issued a circular on capping the maximum LTV for expatriates at 50 per cent for the buying the first home and 40 per cent on the second buy. However, the limit for the UAE national was restricted to 70 per cent for the first purchase and 60 per cent for the second one.
The move is aimed at avoiding another property price bubble that cost heavy to the real estate sector as well the financial industry which had to write-off a big portion of defaulted home loans.
Since then risk-averse banks did not lend generously to buy homes. That was one of the factor which in the last four years led to the accumulation of abundance of liquidity in the financial system and added by higher export proceeds from soaring oil prices and faster than expected economic recovery.
The shocked banks met thrice in the month in Dubai to form a unified response to the new lending rules on home finance.
The chairman of Emirates Banks Association last week asked for immediately putting a freeze on its implementations and sought clarifications on procedural issues. "What should be the maximum LTV ratio in your opinion," the central bank said in its questionnaire issued on Tuesday, to the financial industry, in its first response to the bankers' reaction. It asked "what should be the appropriate maximum financing amount, for both the UAE nationals as well as expatriates."
In another question, the banking regulator asked "what should be the accepted sources of repayment. And what should be the maximum repayment period."
The regulator asked the banks and financial institutions "what should be the accepted collateral" or guarantees to sanction loans to home buyers. Since many UAE nationals retire during the loan tenor, the central bank asked "how should a retired borrower be treated." If a borrower retires during the tenure of the loan, the amount of the installment should be adjusted to his new income or pension, the central bank said.
The banking regulator said that its new regulations will include new components like transparency in the setting and publishing of all fees and interest rates including the calculations of interest/profit rate fixed, floating based on EIBOR, without impediment or usury penalty to the transfer of the loan between institutions or to early repayment of the loan.
Banks and finance companies may give to loans to "Housing programmes" special treatment against incentives provided for such loans by official housing programme in the UAE, the central bank said.