The Central Bank of the UAE (CBUAE) released a notice to alleviate the impact of increased interest rates on residential real estate loans for UAE nationals (non-investment real estate) on July 4, 2023. 

Effective July 1, 2023, the measures apply to all residential real estate loans. Involving individuals with increased Debt Burden Ratios (DBRs), banks only defer interest after repayment. Banks postpone the incurred interest for loans with non-increased DBRs due to higher rates. The measures apply to both categories to alleviate the impact of rising interest rates.

Banks can exceed the 50 percent deduction rate from customers earning Dh40,000 monthly. It will cover the interest rate hike of up to 60 percent. The authorities permit a maximum deduction of 60 percent to ease the impact of increased interest rates on customers with higher incomes. The banks will bear the remaining uncovered interest resulting from the increase. They will offer relief to customers without extending the loan tenure.

Banks can extend the repayment tenor to 30 years for customers with a monthly income below Dh40,000 to accommodate the increased interest rates. Despite the extended tenor, the deduction percentage remains 50 percent, following current regulations. This measure aims to relieve lower-income customers affected by higher interest rates. Again, the banks will shoulder any remaining uncovered interest due to the rate hike.

This notice follows approval from the CBUAE Board of Directors. It aims to mitigate the impact of higher interest rates on residential real estate loans for UAE nationals. The decision is based on a comprehensive study the Central Bank conducted, with the collaboration of various banks. After consultations with the UAE Banks Federation, they decided to assess the effects of increased interest rates on banks’ assets, investments, and customers.

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