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Article (3): Important Ratios

C 31/2013 Effective from 28/11/2013
  1. 1. Debt Burden Ratio (DBR)

    The maximum DBR allowed is set out in “Regulations Regarding Bank Loans and Other Services Offered to Individual Customers”- i.e. 50 percent of gross salary and any regular income from a defined and specific source at any time’. It is important however that when making an assessment of the borrower’s ability to repay, financial institutions do not automatically apply the maximum DBR and take into account the specific circumstances of the borrower and the exposure to the institution.

    In arriving at the DBR, mortgage loan providers are required to stress test the loan at (2 to 4) percentage points above the current rate of interest on the loan, depending upon what level interest rates are at in the cycle. Where an introductory interest rate applies the stress test should be carried with reference to the rate that will apply on cessation of the introductory rate.

    Where the property is for investment purposes mortgage loan providers are required to make a deduction of at least two months’ rental income from the DBR calculation to assess the borrower’s ability to repay taking account of non-rental periods.

    Where the loan repayment schedule extends beyond the expected retirement age, mortgage loan providers are required to ensure that the balance outstanding at that time can continue to be serviced at a DBR of 50 percent of the borrower’s post retirement income.
     
  2. 2. Loan to Value Ratio (LTV)

    The maximum Loan to Value (LTV) ratio are as follows:
    1. A. UAE Nationals
      • First House/Owner Occupier

      Each borrower can only claim one property under this category.

    2. a. Value of Property less or equal to AED 5 million - maximum 85% of the value of the property.
       
    3. b. Value of Property more than AED 5 million - maximum 75% of the value of the property.
       
    4. • Second and Subsequent House or Investment Property

      65% of the value of the property, regardless of value.
       
    5. B. Expatriates
    6. • First House/Owner Occupier

      Each borrower can only claim one property under this category.

    7. a. Value of Property less than AED 5 million - maximum 80% of the value of the property.
       
    8. b. Value of Property more than AED 5 million – maximum 70% of the value of the property.

      Second and Subsequent House or Investment Property
      60% of the value of the property, regardless of value.
       
    9. C. All Categories - Property purchased off plans

      Given the long term nature of the development process and the higher level of risk to completion, the maximum LTV for mortgages on property being purchased off plans is 50% regardless of purpose, value, or category of purchaser.
       

  4.  
  5. 3. Maximum Term of Loan

    The maximum tenor of the mortgage loan is 25 years.
  6.  
  7. The maximum age at the time of the last repayment should be determined by the mortgage loan providers in accordance with their risk management and lending policies.
    .
  8. 4. Maximum Financing Amount

    As per Article 3.1, the DBR cannot exceed 50%.

    In addition, the maximum financing amount allowed is as follows:
     
    1. • UAE Nationals: up to 8 years annual income.
       
    2. • Expatriates: up to 7 years annual income.
       
  9. 5. Source and Frequency of Repayment

    Repayment should be made from salary or verifiable business or rental income. The use of ‘End of Service Benefit’ is not allowed.

    Principal and interest repayments should be made on a reducing balance basis (except for mortgage loans with differed repayment of principal – treated as per 6 below).

    Repayments should be at a frequency not less than quarterly. The Central Bank would expect there to be minimum exceptions to this policy.
     
  10. 6. Interest Only Period

    Mortgage loans with deferred principal repayment should only apply to investment loans. These loans should not allow for non-repayment of principal for longer than 5 years from date of first drawdown of the loan.
     
  11. 7. Acceptable Collateral

    A first class mortgage in the name of the mortgage loan provider must be taken on all financed properties.

    In cases where the property being financed falls under the various Government Housing Schemes and a first charge cannot be created, mortgage loan providers should have other means in place to protect the loan collateral including the taking of a second charge on the mortgaged property where possible.