I’m too young (honest) to remember the good old days of banking, where everyone knew their bank manager and applying for a mortgage was as simple as asking him if he would be happy for the bank to lend you the cash.
Those days are well and truly gone, nowadays applying for a mortgage is more a case of ‘computer says no’ (for anyone who’s ever watched the UK comedy show Little Britain).
You may think that you manage your bank accounts correctly, have no other debts, and have a good deposit amount saved, but still the decision rests with complex computer calculations and credit searches going back as far as 7 years into your past.
Now banks want to see your pay slips, half a years bank statements, and all manner of other personal information before they make their mind up. Add to this the rigorous compliance checks that are done on individuals and the process becomes confusing, stressful, and time consuming.
Below are a few pointers for UAE expatriates when looking for a mortgage, which will hopefully ease the pain of dealing with lenders, or at least prepare you for whats to come!
- Firstly, mortgage interest rates vary wildly between lenders. Some of my clients have been paying as much as 9%, which is shocking considering there are sub 2% mortgages currently on the market. It pays to shop around in order to find the best deal.
- The minimum deposit now required for expats is around 25% of the property value. This means the maximum LTV (loan to value) for a mortgage is currently 75%. This figure is closer to 90% in Europe, US, etc…
- Next is something called DBR (debt burden ratio). Most banks in UAE will look for a maximum 50% DBR – meaning, in simple terms, that all of your current debt payments plus the expected mortgage payment each month should not be more than 50% of your monthly salary – if it is, no mortgage.
- If you’ve successfully navigated through these hoops, next is the property valuation. As mentioned, banks will normally lend no more than 75% of the property value. This means it is extremely important to get a valuation on the property before an MOU is signed with the seller – even if this costs a little more. By doing this you will ensure that you have a fair price for the property and the bank will lend you the full amount required.
- An additional little known factor when obtaining a mortgage is the insurance policy required. Mortgage providers will not disburse funds unless a life insurance policy is set up and assigned to them. This has to be a new policy matching both the mortgage term and covering the full mortgage amount. Failure to have this in time may lead to the property purchase falling through.
It is always advisable to seek independent advice when looking to obtain a mortgage. A property is likely to be your single biggest asset, so ensuring you have the correct mortgage and insurance policy is paramount.
Looking for a mortgage in UAE or globally? Want to see if your current mortgage deal is the best for you? Get in touch using the below channels:
- Twitter: @ckadvisor
- LinkedIn: Chris Keeling DipFA CeSRE
- Blog: christopherkeeling.wordpress.com
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