Mortgage Facts in UAE

The UAE is fast regaining its frontier market status as Expo 2020 is approaching.

This forces the banks to follow suit. And they’re doing their work by introducing non-resident and under construction finance, new products that will boost their value in this emerging market. Now you might be thinking, is it time to get that mortgage I need? Here are some things you need to know first before moving forward.

TYPES OF MORTGAGES IN THE UAE

There are three types of mortgage rates currently available in the UAE.

1. Fixed rate – is a mortgage that has a fixed interest rate for a term between 1 to a maximum of 5 years. The benefit of a fixed rate mortgage is that the home owner will not have to contend with varying loan payment amounts that fluctuate with interest rate movements. Upon expiry, the fixed rate will revert to either a bank variable rate or to an EIBOR linked rate.
2. EIBOR rates – Set by the Central Bank, the Emirates Interbank offered rate is the average interbank borrowing rate of 11 lending banks and published daily on the central bank website.
3. Variable rate – usually predetermined by the bank itself, it takes into account various factors such as internal costs, liquidity, risk, default rate among other factors.

MAXIMUM LENDABLE AMOUNT

A change in Central Bank policy regarding all lending for expats has now been valued at 75% loan-to-value for properties under 5M AED and 65% loan-to-value for properties above 5M AED. Nationals can secure a larger mortgage amount, 80% on every property. All second property and/or investment property is now capped at 60%, with off plan/under construction being capped at 50%.

Remember: To be able to apply for mortgage, your debt service ratio (DSR) should not exceed more than 50% of your monthly income. This is calculated by adding up all of your monthly liabilities, plus your projected mortgage payment.

DO BANKS FINANCE ‘UNDER CONSTRUCTION’ PROPERTIES FOR ALL DEVELOPMENTS?

Only a handful of banks will lend on certain off plan developments, usually only to the bigger developers in Dubai (Nakheel, EMAAR and Dubai Properties). However, the banks are currently re-addressing their stance because of the emergence of many projects.

NON-RESIDENT MORTGAGE IN UAE

Non-residents can now access financing up to 75% loan-to-value, with rates as low as 4.75%. But not all banks have this product in their offerings. But with the Expo 2020 spotlight looming over real estate in Dubai, there are going to be sharp increases in enquiries from non-residents who are contemplating an investment in the UAE real estate market, which might roll things to the non-residents’ favour.

THE LENGTH OF THE MORTGAGE PROCESS

The average length of most mortgage approvals is around 4-5 weeks in total. If the bank needs to clear the mortgage with the seller, another 2 weeks can be added to the overall time.

HOW TO APPLY FOR A RE-MORTGAGE

You can ask for a review of your existing facility with a view to refinance to a better rate and/or more flexible product. Some banks offer reduced or zero processing fees for clients looking to change lenders.

CAN I RELEASE SOME EQUITY FROM MY EXISTING PROPERTY?

Most banks will allow you to remortgage your existing unit to release funds, although banks will limit their loan-to-values and others would only allow an equity release for a specific purpose such as to purchase a further property in the UAE.

SHOULD I HIRE A BROKER OR CONSULTANT?

There are around 33 lending banks in the UAE with over 100 mortgage product combinations so the choices are pretty extensive. That’s an advantage, but there is a disadvantage to this. Unless you’re willing to allot hours in a day to contact banks and ask around, then you should be in touch with a mortgage broker/consultant. A good mortgage broker would have contact with many different lenders and access to discounted pricing and favourable terms that individual borrowers can’t access.

Find an established consultant like Home Matters. These institutions have some leverage to deal with banks, and from time to time, can offer clients better rates, faster turnaround times, and terms compared to applying directly to your bank.

SOURCE: Roots Land Real Estate