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News Release

KSA

Council of ministers approves procedures for “facilitated mortgage”


​​​The new mortgage will be a joint effort between the Ministry of Housing, Ministry of Finance and the Saudi Arabian Monetary Agency (SAMA) according to reports on the Cabinet's session held last Monday, 31st of October, 2016. The Ministry of Finance will issue a financial guarantee and trust to cover 15% of the total value of the real estate unit in case mortgagees default on payments and the mortgaged house sale price does not cover the defaulted amount. Financial guarantees are specific to the beneficiaries of the Ministry of Housing Eskan projects. The facilitated mortgage aims to increase homeownership, investment, and healthy competition.

First, the new mortgage should help raise the current 47% Saudi homeownership rate by easing access to home financing. This is in line with the goal to achieve a 52% Saudi homeownership rate by 2020, which was communicated in June 2016 as part of the National Transformation Program (NTP).

Second, the facilitated mortgage may encourage banks more towards this new model and make additional investments in the housing sector. The financial guarantees of 15% of the total loan value will remain in place until mortgagees pay off 70% of the loan, after which the financial guarantees will no longer be valid. The Ministry of Finance reduces a portion of the risk that banks undertake; giving them an incentive to make additional investments.

Third, the facilitated mortgage will help expand the market for developers by increasing competition between them. This should lead to increased efficiency. Moreover, the Ministry of Housing is planning to implement the facilitated mortgage program for one year trial period. They are aiming to submit an assessment report to the Council of Ministers three months prior to the end of the trial period to assess its effectiveness.

The announcement is a positive step in light of the recently announced wage freezes and the removal of certain benefits, which has led to declining purchasing power on the consumer front.

The current loan-to-value of 70% caused stagnant activity in residential market transactions, leading to higher rental prices. The new facilitated mortgage, should ease access to financing and help bridge the gap between supply and demand. The facilitated mortgage should benefit the Saudi Arabian housing sector in the short and long term. In the short term, it should stimulate demand by making home financing accessible, while in the long term, it will help supply and demand in the housing sector reach an equilibrium.