Home loan insurance should be a priority

The global financial crisis is having a significant impact on the property sector in the UAE and the rest of the GCC. Even with proactive measures by the region’s policymakers, widespread uncertainty globally has made local lenders more risk averse, leading to a tightening of credit for housing finance and stricter requirements for home loan approvals.

Without a return to normal lending practices for home buyers, the strains in the property market and related sectors such as construction are destined to worsen. In this situation, one way to boost home lending could be the introduction of mortgage insurance.

One of the main reasons that banks are currently reluctant to lend is the difficulty of evaluating the creditworthiness of clients in an environment characterised by uncertainty, where exaggerated rumours of layoffs and economic doom abound and where information on credit history is sketchy or absent. These problems are compounded by a lack of the tools and institutions available in many developed countries and even some emerging markets, which allow for risk mitigation and risk pooling. In particular, the UAE lacks an institution providing insurance against mortgage defaults by individuals experiencing economic hardship. Such institutions are increasingly common across the world and one might argue that the time has come for the UAE to establish a nationwide mortgage insurance company.