In a bid to alleviate the impact of rising interest rates on real estate loan payments, the Central Bank of the UAE has issued new guidelines to banks. These measures aim to lessen the burden of loan repayments and provide relief to borrowers affected by the increase in interest rates.
These measures are specifically introduced to manage the payment burden for UAE nationals and are categorized into two groups: loans for individuals earning more than AED 40,000 ($10,900) per month and those earning less. The primary objective of these guidelines is to decrease the overall expenses involved in property acquisition for UAE nationals.
UAE real estate loans
The Central Bank of the UAE has communicated a notice to all banks and finance companies in the country, detailing the actions taken to ease the impact of rising interest rates on residential real estate loans for UAE nationals (excluding investment properties).
Effective from July 1, 2023, these measures apply to all residential real estate loans, including those with increased Debt Burden Ratios (DBRs), where banks have not deferred any interest until after repayment, as well as loans with non-increased DBRs where banks have deferred the interest accrued due to higher interest rates.
As per the CBUAE's statement, customers earning a monthly income of AED 40,000 ($10,900) or more may be allowed to exceed the current rate of deduction from their salary or income, which is set at 50 per cent according to regulations. Banks can now increase this deduction rate up to a maximum of 60 per cent to accommodate the rise in interest rates. However, in doing so, banks must bear the responsibility of covering the remaining interest that results from the increase in interest rates. This exemption effectively relieves customers from paying the remaining interest without extending the loan tenor.
Furthermore, customers earning a monthly income of less than AED 40,000 have been granted the option by banks to extend the repayment tenor in order to accommodate the rise in interest rates. The extension can be up to a maximum of 30 years, while keeping the percentage of deduction from salary or income at the existing rate of 50 per cent, as per the current regulations. In this case, banks are responsible for covering the remaining interest that arises due to the increase in interest rates.
The issuance of this notice comes after obtaining approval from the Central Bank Board of Directors for a series of measures designed to alleviate the impact of rising interest rates on residential real estate loans for UAE nationals.
Furthermore, this decision is informed by the findings of a study conducted by the Central Bank in collaboration with several banks. Additionally, consultations with banks through the UAE Banks Federation have been held to assess the effects of high interest rates on the assets, investments, and customers of these financial institutions.
