Mortgage Watch FAQs for 2015

The UAE real estate scene is regaining its status once again as an emerging market. Because of this, the retail banking sector is making its own moves to anticipate the rise in the demand of their service.

The banks are slowly but surely recovering from the hit they received during the financial crisis a few years back. Now, they seem to be doing well. They’re now offering a broader service to the non-resident customers with products such as non-resident and under construction finance.

Due to these additions, you may have a few questions in mind. Here are a compilation of questions you might be asking and the answers you need to know.

WHAT ARE THE TYPES OF MORTGAGE RATE?

There are three types of mortgage rates.

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 and deemed completely transparent.
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.

WHAT IS THE MAXIMUM AMOUNT I CAN BORROW?

Expats can loan up to 75% value for property purchase prices under 5 million AED and 65% for purchases above 5 million AED. UAE nationals have a higher maximum loan cap. They can secure a further 5% on these loans to value ratios. All second property or investment property is now at 60%, with off plan or under construction projects at 50% loan to value.

To be able to get a loan or mortgage, you must be able to pass the DSR or Debt to Service ratio of the central bank. What is the passing rate? If you add up all of your monthly liabilities, plus your projected mortgage repayment, this amount cannot exceed 50% of your monthly income.

IS ‘UNDER CONSTRUCTION’ FINANCE AVAILABLE FOR ALL DEVELOPMENTS?

Only a handful of banks will lend on certain off plan developments and usually only to the bigger developers in the Dubai real estate market such as Nakheel, EMAAR and Dubai Properties. However, with the influx of under construction or off plan units and developments available, the banks are currently re-addressing their stance to accommodate more clients.

HOW LONG WILL IS THE MORTGAGE APPLICATION PROCESS?

The average time frame for most mortgages is around 4-5 weeks in total. Therefore, do not be fooled by anyone or any financial institution that tells you a final mortgage approval can be done in only 5 working days. This is a rare occurrence that usually happens when one is already a verified and long-time trusted client of a financial institution. In some cases, the mortgage process extends when the bank providing you with the mortgage has to clear the mortgage of the seller. This process can add an additional 2 weeks to the overall time frame.

AM I PAYING TOO MUCH FOR MY MORTGAGE?

This could be the case if you purchased between 2005-2010, as interest rates were high at that time. If this is the situation, it would be advisable to consider a review of your existing mortgage to refinance to a better rate or to be qualified for a more flexible product. Some banks offer reduced or zero processing fees for clients looking to change lenders.

CAN I RELEASE EQUITY FROM MY EXISTING PROPERTY?

Most banks allow remortgages on your existing properties to release funds. Some banks limit their loan to values and others would only allow an equity release for a specific purpose, for example: to purchase a further property in the UAE. 

SHOULD I USE A MORTGAGE BROKER OR CONSULTANT?

There are many financial institutions in the UAE offering various products that will suit your needs. While you can shop among as many lenders as you want, the reality is that you are limited in the number of banks you can contact. A good mortgage broker would have contacts with many different lenders and access to discounted pricing and favourable terms that individual borrowers don’t.

For example, Home Matters have a large market share, having been established in Dubai since 2006. Their transaction volumes of businesses placed with the banks gives them some leverage, and from time to time, offer clients better rates and terms compared to applying directly to a bank. Because of this, they also achieve faster turnaround times.

SOURCE: Roots Land Real Estate