People in the UAE take on debt for various reasons, such as investing, buying property, paying school fees, or funding lifestyle purchases. However, the affordability checks set by regulators can sometimes stop consumers from accessing extra funds.
AJ, a UAE resident, and his wife took out a joint mortgage last year to buy a property in Dubai. Fifteen months after getting the mortgage, the couple wanted to borrow money to renovate their home. However, they discovered that the Etihad Credit Bureau and the Central Bank of the UAE had added the joint mortgage to both of their credit reports, causing financial problems.
Understanding Debt-Burden Ratio (DBR)
A customer’s debt-burden ratio (DBR) is the percentage of their total monthly payments compared to their total income. Banks use this number to decide if someone is eligible for loans and credit cards.
The couple’s mortgage, personal loan, and car loan made up about 55 percent of AJ’s personal income. When his wife’s income was added, their total debt was about 33 percent of their combined income.
“My credit score is over 750, and I have never missed a payment. Because of the DBR calculation, the mortgage now counts as 75 percent of my wife’s income, even though the Central Bank limits the DBR to 50 percent,” AJ explains.
Central Bank Regulations
The Central Bank of the UAE has strict rules about the DBR, which is capped at 50 percent of an individual’s or couple’s total monthly income. This rule ensures that no more than half of a person’s income is used to pay off debts, including loans, credit card payments, and mortgages.
Banks check a person’s credit score to calculate their DBR, which shows their current debts.
Role of Etihad Credit Bureau
The Etihad Credit Bureau, established in 2014, provides credit scores in the UAE. This three-digit number shows how likely customers are to pay their debts on time based on their past behavior.
Credit scores range from 300 to 900, with higher scores indicating lower risk, according to the bureau’s website. For example, a score of 300 means the customer has missed several payments, while a high score shows responsible credit use, making it easier to get loans and credit cards.
Challenges Faced by AJ and His Wife
AJ said that his request to increase his credit card limit was denied, even though he had enough income to handle new debt.
“We managed to sell some things we had in the UK and borrowed money from my parents,” he says. “Otherwise, we wouldn’t have been able to renovate our home.”
The couple had to use credit card installments, which were sometimes four times more expensive than what they would have paid on a personal loan had they qualified for one. This is because credit card plans have shorter repayment periods compared to personal loans.
AJ also mentioned that, apart from their income, the couple only had Dh700 ($190.60) left in available credit.
Response from Etihad Credit Bureau
A representative from the Etihad Credit Bureau customer support team said, “While it’s understandable that the couple is facing challenges due to the joint mortgage on both credit reports, this is a common practice among credit bureaus worldwide, especially for joint accounts.”
This approach allows lenders to assess each person’s creditworthiness based on their income, existing debt, and other financial factors. When a joint account like a mortgage is set up, both individuals share equal responsibility for the debt, which is reflected in their credit reports.
“Joint debt, such as a mortgage, usually appears fully on each person’s credit report, as both parties are responsible for it,” said Maroun Abou Harb, an associate at BSA Ahmad Bin Hezeem & Associates.
Further lending decisions depend on each lender’s policies, which can vary. Each lender has its own criteria for evaluating creditworthiness, affecting the final decision on loan approvals.
Maroun suggests that the couple’s first step should be to understand how joint accounts are reported by the Etihad Credit Bureau. He encourages them to reach out to the bureau for clarification.
“Since the joint mortgage is reported fully on both credit reports, the DBR may be calculated higher than expected,” he says. “Although the report structure won’t change, they should still consult with lenders to ensure their DBR reflects their combined income accurately.”
Exploring Mortgage Options
If issues with the DBR or accessing credit continue, the couple might consider reviewing their mortgage structure. They could explore refinancing options to adjust their debt obligations, such as negotiating a better lending agreement or restructuring their mortgage.
If financial institutions continue to deny credit despite the couple’s responsible financial history, they can file a complaint with the Central Bank of the UAE.
Seeking Help from the Central Bank
“The Central Bank ensures that financial institutions follow consumer protection laws, which prevent unfair treatment based on wrong financial assessments,” Maroun adds. “Under Federal Law No 14 of 2018, the Central Bank provides ways for consumers to file complaints about financial practices, helping the couple seek a fair assessment if lending decisions are based on incorrect DBR calculations.”
Credit Scoring and Joint Mortgages
Ludmila Yamalova, managing partner at HPL Yamalova and Plewka, explains that in cases of joint mortgages, the loan amount appears fully on both individuals’ credit reports.
“Any payments made toward the mortgage help both credit scores, while missed payments negatively affect both,” she says. “It’s normal for a credit score to drop when debt is reported, but as they make payments, their scores will improve, allowing better access to credit in the future.”
By taking proactive steps, such as consulting with lenders and exploring refinancing options, they may find solutions to improve their financial situation and access the credit they need. Moreover, staying informed about their rights and protections under UAE law can empower them to address any unfair treatment in the lending process.
