FOR PROPERTIES SOLD FOR LESS THAN AED5 MILLION EXPATS MUST PAY A MINIMUM DEPOSIT OF 25 PERCENT OF THE PURCHASE PRICE

 

The days of feverish speculation have long gone, making Real Estate Companies in Dubai among the world's most volatile. Today, end users dominate the market and rely on mortgage borrowing to help finance their purchases.

There are many variables to consider for potential borrowers:

 From the upfront costs to deciding on the length of the mortgage and whether to opt for a variable or fixed interest rate.

Expats must pay a minimum deposit of 25% of the purchase price for properties sold for less than AED5 million, in accordance with UAE Central Bank rules. In addition to this down payment, in Dubai you will need an additional four percent transfer fee (less in other emirates) plus a mortgage registration fee of 0.25 percent based on the amount of the loan. Usually, you can pay two percent real estate commission in all emirates, a valuation charge from AED 2,500 to AED 3,000 and also a loan establishment fee of up to one percent of the value of the loan.

However, there is some good news that some banks are now enabling mortgage borrowers to add three-quarters of their home loan purchase fees. This will minimize the cash an expat buyer needs to pay upfront by almost AED70,000 on an AED1.5 million purchase. More for a national from the UAE.

Receive pre-approval

Before doing any serious property searching, prospective buyers should first receive mortgage pre-approval to validate their budget. If you commit before receiving financial approval and are subsequently denied bank funding, you can lose the deposit if signing a purchasing agreement allows the buyer to offer a cheque for 10 percent of the purchase price.

Since loan policies, fees and rates vary greatly among different banks, it will save you time, money and a major headache by using a skilled mortgage broker to advise you on the most appropriate choice.

It is also important that the buyer and seller agree to insert a provision in the purchase agreement that stipulates that the deal is subject to the bank's property valuation. If the lender declines to approve the mortgage on the grounds that the property is overvalued, this would cover the buyer's deposit. Such valuations may also be done, if desired, before the selling agreement is signed.

Usually, banks limit mortgage lending such that repayments are no more than 25% of the monthly income of a borrower. When deciding how much to lend, lenders will also take current debts into account, such as car loans or credit card debt. However, various banks have different calculation formulas for borrowing power. The different loan policies between banks can mean a difference of Dh300,000 in your pre-approved mortgage limit for someone earning Dh25,000 per month.

Duration Of Mortgage

For salaried people up to 65 years of age, the maximum loan permitted in the UAE is 25 years (70 for self-employed). A longer term minimizes monthly expenses, but the overall interest you would actually pay to the bank rises. We advise you to take the longest term, as this will maximize your borrowing capacity and make additional payments during the course of the loan if you can afford it. Without penalty, borrowers can usually repay an additional 10 percent of the principal amount remaining each year, so you can repay faster if desired. Paying an additional 10% a year on a Dh1.2 million loan would allow you to pay off your loan three years earlier and save you interest in excess of Dh75,000.

Growing interest rates

Currently, mortgage interest rates are about 2.99 to five percent, but are beginning to creep up following rate increases in the US. The dollar peg of the dirham means that Developers in UAE interbank rates match those of the Federal Reserve. Recent movements by the Fed appear to herald the start of the end of nearly a decade of ultra-low interest rates, and we strongly suggest that borrowers secure a fixed mortgage rate. This is normally for a two-year duration and UAE banks currently offer fixed rates of between 3.5% and 4.5%, which is marginally higher than the variable rate.