Mortgage laws: Balancing act between borrowers and lenders

The three sets of laws issued recently by the Saudi Arabian Monetary Agency (SAMA) — the real estate mortgage law, the financial lease law, and the financing company's supervision law — are adequate for real estate financing, and strike a balance between borrowers and lenders, said Said Al-Shaikh, chief economist at National Commercial Bank.
However, he added that the laws would likely only benefit middle to high income earners.
The first two laws, he said, include clauses dealing with transparency for the benefit of the customer. This allows the customer to get a clear picture of all the details of the financing transaction. These include information on whether a fixed or variable rate is used, the time period for repayment, and the formulas and mechanisms for the calculation of rights in case the customer wishes to repay the loan earlier than its due date.
"We are still waiting for the procedural rules and regulations for the mortgage law. When we have this, then the system of real estate financing will be complete," he said.
"On the other hand, a citizen's ability to obtain a mortgage within these laws is constrained, since most banks require the borrower to have a higher-than-average monthly income. If a person earns a monthly income of around SR 4,000 or SR 5,000, he cannot own a house. So my guess is that the groups that will benefit the most from the real estate finance laws will be middle- to high-income earners," he added.
Muhammad Al-Amir, chairman of the Real Estate Commission (RES) at the Jeddah Chamber of Commerce and Industry, said that a borrower must pay a down payment that amounts to 30 percent of the value of the property. "Most citizens cannot afford to pay this amount, and that really is a handicap. On the other hand, you cannot make everybody happy at the same time," he said.
Talal Samarqandi, also a member of RES, said that the new laws would encourage lenders to actively engage in financing properties, since the laws regulate the relationship between lenders and borrowers, and contain clauses that show how the lender should act in case of a borrower's default, without the need to go to court.