Mortgages have become big business for Saudi Arabia’s banks, with loans to home buyers rising to around a fifth of total credit from less than 1% in 2016 and becoming the biggest single biggest source of demand. Until reforms starting 10 years ago, Saudi home buyers were largely reliant on an Islam-compliant, government fund to borrow, with applications sometimes taking more than a decade for approval. The big reform push occurred in 2018, when the government pledged to double mortgage lending and expand the number of lenders. The dramatic increase in lending isn’t cause for immediate concern, says Middle East Economist James Swanston. He notes that prices so far haven’t risen to reflect the surge, while Saudi bank balance sheets are the strongest in the Gulf. But the rise of mortgage lending does mark a big shift for Saudi banks that will leave them exposed in the event of a housing downturn. “The health of the Saudi banking sector is becoming more closely linked to the state of the property market and household incomes than ever before,” Swanston says.
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