The Central Bank warned banks against granting personal loans to individuals as mortgages, in violation of the regulations issued by them, and called on them to stop this type of loans and full compliance at all times.

According to information compiled by Emirates Today, several banks have been providing loans to individuals for up to 20 years mortgages, but these loans are directed to repay personal debts in other banks or to close credit cards with interest rates of more than 30% per annum. When the interest on the mortgage loan does not exceed 4%, or benefit from «cash» away from any construction or maintenance of the property, as recorded in the records of banks, which prompted the Central Bank to intervene.

New Circular

In detail, the Central Bank, in circular No. 5060/2019, signed by the Deputy Governor, Saif Hadif Al Shamsi, was sent to all banks and finance companies operating in the state yesterday, and obtained «Emirates Today» a copy of it, he «grew to the knowledge of the bank "Many banks have introduced various loans against real estate as mortgages, in violation of the mortgage law," he said, adding that because of this he issues the following guidelines to ensure banks and finance companies comply with the mortgage system, as well as the provisions of the bank loan system and other services provided to individuals. .

Mortgage

According to the circular, the mortgage loan is defined as a loan that is secured by a residential property and is granted for the purpose of constructing, buying or renovating a house to be occupied or invested by the owner. It also includes the loan granted for the purchase or development of land for the same purpose.

It also stipulated that “any other personal loans granted by banks and finance companies using real estate, as collateral for purposes not specified in the above definition, shall not be classified as mortgages and shall therefore be treated in accordance with Regulation 29/2011 on Individual Loans”.

funding companies

"Accordingly, banks and finance companies are not allowed to extend such loans for more than four years. They should not take private homes as collateral for personal loans." "In the case of any personal loans or mortgages, banks and finance companies should ensure that the debt burden does not exceed 50% of salary or regular income, or 30% in case of retirement." He pointed out that «in the case of low salary for reasons other than retirement, the bank can adjust the debt burden to 50% of the low salary by extending the term of the loan». "Personal and mortgage loans should not be structured as an overdraft," he said.

The Central Bank called on banks to abide by these guidelines and to ensure full compliance with the mortgage and individual loans systems at all times.

It is noteworthy that the Central Bank's supervision of banks and follow-up of their compliance with the regulations, has witnessed a remarkable development for more than a year ago, where the past period has seen the issuance of several circulars, including instructions and strong guidance, especially when there is a lack of collective compliance, but in contrast there is no disclosure For any penalties or actions taken against banks that violate its regulations, nor the fines imposed.

- Banks are not allowed

And finance companies

Extend the loan period

Personal for more

Than four years.