Property Mortgages: Dig the dirt

MortgageImage Credit: Supplied

T he cost of a property is not the only thing prospective homebuyers should be looking at when making a purchase. While the deposit and additional fees can amount to more than 7 per cent of a property’s sale price, many people still set out to buy property without knowing the full costs. Factoring in transfer fees, mortgage registration, title deed and bank valuation among others, the costs can quickly add up.

“People waste a lot of time looking at developments that are out of their budget,” says Warren Philliskirk, Director of Mortgage International, a Dubai-based mortgage broker.

For an average property in the region of Dh2.5 million, additional fees could be around 7.25 per cent of the price, which amounts to Dh756,000, says Philliskirk.

Philliskirk says most of those who get a mortgage know they have to fork out a deposit, but they are not well informed about the full scale of the costs.

“When we do an itemised budget with some individuals, they would realise they have to scale down their expectations,” he says.

Praveen Mehta, Business Development Manager of Coldwell Banker UAE, agrees that most consumers are not fully aware of the associated costs, which he estimates to be worth approximately 6.5 per cent of a property’s value. He cites a lack of professionalism and ethics from some brokers, who do not divulge this information for fear of losing potential deals.

Some of the largest costs that homebuyers should plan for are the 4 per cent transfer fee and the 2 per cent broker’s fee, says Mehta.

Ben Crompton, Managing Partner of Crompton Partners Estate Agents in Abu Dhabi, says it is the registration fee that usually catches people off guard.

“It isn’t required on the initial sale of a property, just for resale. So in a young market like this, it can be forgotten easily,” says Crompton.

He also believes that extra fees should not account for more than 5 per cent of the total purchase price when buying property in Abu Dhabi, with the registration fee (2 per cent in Abu Dhabi) and broker’s fee accounting for the largest expenditure.

Although people are not always aware of the hidden costs when buying a home, they are still keen to acquire a property even if it means they have to downsize.

“It depends on how heart set they are on a particular property — they sometimes put things on hold to get additional funds or you’ll find they are happy to be flexible and look at a smaller unit or a different area,” says Philliskirk. “Rent is dead money and people who know that want to get out of the rental trap.”

Crompton says hidden fees should not be too costly, noting that he has not heard of anyone who had to put off a purchase because of the extra fees.

“However, we have had someone reapply for a higher mortgage to pay the additional fees,” he says.

If clients are short on cash, some banks sometimes offer a personal loan to cover the additional costs. However, this excludes the deposit, which must be paid by the client’s own funds.

“Personal loans can be taken out, but they will be factored into any mortgage calculation by the bank,” says Crompton.

Mehta notes that taking a personal loan is now less common, not like a few years ago when banks were including such offers to sell their products. New UAE Central Bank regulations have ruled out such practice.

Although taking a personal loan to cover additional property costs is not common, banks usually extend facilities that cover all costs save for the deposit, according to industry experts.

“Certain banks will finance the additional fees with a personal loan, but it must fit in with the client’s personal income,” says Philliskirk.

He adds that reputable brokers help clients go through a full cash-flow plan to prepare for any unforeseen circumstances.


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