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Dubai property prices have been softening for a year now, making real estate appealing to many new buyers. With the market offering favourable mortgage rates and attractively low property prices, those who are planning to purchase their own homes this year have plenty of choices. If you’re looking to finance your property purchase, here are seven things to remember.
Get an agent
Buying a house can become a lot easier if you get impartial advice right from the start. Seek support from an independent mortgage consultant, who will have access to most banks in the market. “Asking a bank for an impartial view of who offers the best product for your circumstances is unlikely to get the best results,” says Jean-Luc Desbois, Managing Director of Home Matters. “There are many new mortgage brokers in the market, many with very few agreements with banks and little experience. Hence, ensure that your mortgage consultant is credible and has a record of accomplishment of at least five years.”
Mind your credit score
The mortgage market in the UAE continues to evolve to mirror how more mature mortgage markets work, says Ian Vaughan, Senior Mortgage Consultant at Mortgage Finder. “With the recent UAE Central Bank measures and the implementation of Al Etihad Credit Bureau, consumers with multiple lines of credit and missed payments will find it more challenging to acquire bank finance, but each lender will judge an application differently and within Central Bank regulations,” says Vaughan.
Check your eligibility
Find out what amount you are eligible to borrow to narrow down your search. As per the Central Bank, your total debt repayments should not be more than 50 per cent of your monthly income, which applies to all financing facilities, including mortgages, says Ambareen Musa, CEO of Dubai-based financial comparison web-site Souqalmal.com. “So the higher the home loan amount you aim to borrow, the more difficult it could be to obtain it depending on your monthly installments,” says Musa. “Banks have certain criteria when assessing your mortgage application wherein they look at your salary, your employer and length of employment as well as whether or not your company is approved by the bank.
“There is also the down payment, which differs based on whether you are an expat, if it is your first home purchase or whether it is a completed or off-plan property.”
Look at rates
The loan rate determines the price you end up paying for your property. Even a small difference can save you a significant amount. Therefore, look at different schemes to avoid paying an expensive product. Vaughan says, “The best headline rate at present is 2.45 per cent, which is fixed for one year but with certain terms and conditions attached. However, that rate may not actually be the best product for an individual client, which is why we invariably recommend that our clients do not automatically opt for the cheapest rate, but rather secure a longer-term rate that provides additional security.
“There are extended fixed rates at 2.45 per cent fixed for two years, 4.99 per cent for four years and 5.59 per cent for five years available, which are attractive rates for cautious purchasers.”
A mortgagor should try to make overpayments wherever possible to repay the mortgage earlier than scheduled. “Finance is cheap at the moment, but these low rates will not be available in a couple of years and it would be prudent to pay off a mortgage while the rates are still low,” says Vaughan.
Choose loan types
Mortgage shoppers often get confused choosing between fixed or adjustable rates for a loan. Vaughan says, “Adjustable-rate mortgages are beneficial for a borrower in a decreasing interest rate environment, but when interest rates are on the rise, then fixed rates could be more favorable.”
For loans with a variable rate, the interest rate varies depending on the market rates, whether they are linked to the Emirates Inter Bank Offered Rate or the bank’s own Standard Variable Rate. This means there will be a change in monthly payment amount; it could rise or fall during the loan term. In fixed-interest loans, the rate will remain fixed for a particular period.
The loan’s term can be based on the borrower’s needs and ability to repay, and does not affect the interest rate. The banks in the UAE offer a maximum term of 25 years or up to age 65 for employed or 70 for selfemployed.
“We recommend taking a longer term mortgage to minimise the monthly repayment, especially with mortgages that have low or zero early settlement fees,” says Desbois. “This gives control and flexibility.”
Know the fees
As per the Central Bank regulations, banks are now restricted to charge a 1 per cent of the remaining balance or Dh10,000, whichever is less, as early loan settlement penalty.
“Consumers soliciting mortgage loans should ask their lender or financial advisor about the prepayment fee,” says Shehzad Hameed, Head of Retail Products, Middle East, North Africa and Pakistan, at Standard Chartered. “This is a cost that they might incur in the event of settling their loan before the end of the contractual term, or in the event of moving their loan to another mortgage provider.”
Choosing the right mortgage
There are different home loan options available in the market to suit different lifestyles. Choose the right structure that meets your financial goals. It is critical to understand the offer in detail. Consider some criteria when assessing the various options:
• Transparency of the product: The bank should include information on all costs and expenses.
• Pricing: This should be clearly defined and documented, including changes after the fixed-rate period.
• Approval time: The time taken by the bank to approve the loan will help on a commitment to the timelines related to the purchase of the property.
Source: Shehzad Hameed, Standard Chartered
Source: Hina Navin, Special to Property Weekly