Banks may be reluctant to accept the UAE Central Bank’s new automatic payment system for mortgage payments, says Alexis Waller, a real estate specialist and partner at the Dubai office of international law firm Clyde & Co.

The UAE Central Bank plans to introduce the ‘direct debit system’ across banks in the region on 15 June, it announced on 9 April. The facility could be used to pay off mortgage loans and make credit card payments or personal loan instalments.

“The question is how many banks will actually use the direct debit system to replace post-dated cheques - certainly when it comes to mortgages - until a credit check system or analysis is available in the UAE,” said Waller.

“There are processes to screen applicants such as making sure salary is paid into the bank or requesting a personal guarantee, though none really guarantee payment. Neither do post-dated cheques, but at least there is criminal sanction attached [if a cheque bounces].”

In recent months, banks have discussed the need for a UAE-wide credit system, though no concrete plans have been presented yet.

Following the collapse of the UAE property market, an increased amount of borrowers have had to restructure mortgages to avoid foreclosure.