What do the new insurance regulations mean for mortgages?

Recent changes and reforms to insurance regulations by the UAE Insurance Authority are likely to make a significant impact on new mortgages – and could be good news for new buyers.

The UAE insurance industry had a new set of reforms introduced in October, named BOD-49, to help control the way insurance policies are sold and managed. The reforms aim to increase transparency for consumers and reduce mis-selling within the industry.

How do the new regulations affect mortgages?

The changes introduced will have a direct impact on the cost of life insurance for new mortgage holders going forward, but will not affect existing mortgages.

When taking a mortgage there is generally a mandatory requirement by the bank to have life insurance in place. This can be either an external policy or an in-house policy with the bank that you are taking the mortgage with.

The purpose of life insurance is to ensure that in the event of your death the mortgage will be covered. Due to complexities when it comes to repossessing property in the UAE, banks will try to avoid this where possible, hence the requirement for life insurance. The banks want to know that there will be minimal issues with regards to getting their funds back should you pass away.

You can read more about life insurance here.

Following the changes, banks have been required to reduce the rates of their in-house insurance policies and we are already seeing some banks implementing this. Previously, a typical in-house insurance policy would have been between 0.4% – 0.6% of your mortgage amount, this has now been reduced to just 0.16% in some cases.

What do we anticipate?

The reduced cost of life insurance is great news for new borrowers right now!

However, we expect that banks will adjust their overall mortgage rates in the coming months to take the reduced life insurance into account. This could mean that some lenders will increase their mortgage rates slightly, knowing that life insurance is cheaper and they are making less of a return in this area.

Some banks have already adjusted their variable rates and we anticipate that more will alter their fixed rate products towards Q1 2021.

If you are considering buying with a mortgage, then we encourage you to secure pre-approval soon before any possible rate changes occur. Fixed mortgage rates are currently at the lowest levels in several years, so securing pre-approval now could mean you benefit from both the current rates and also the reduced cost of life insurance – meaning an overall lower mortgage repayment amount.

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