Mortgage in the United Arab Emirates (UAE) are readily available to expat borrowers looking to buy or invest in property. This helpful guide explains what you need to do to get on the property ladder there.
The United Arab Emirates has become an increasingly popular destination for expats, especially in business-friendly areas such as Dubai and Abu Dhabi. In recognition of this trend, the mortgage market in the UAE is now well-established, with international and local lenders offering home loans to expats. Both residential and buy-to-let mortgages are available to foreign nationals living in the UAE, although their criteria vary.
Image credit: Expatica
Millions of expats live in the UAE, but many still choose to rent; either due to the cost of buying, uncertainty about how long they will be living abroad, or the costs involved in a property purchase.
Foreign buyers in the UAE can purchase apartments and houses in specified areas that contain freehold developments. Many expats purchase new homes off-plan, directly from a developer. This often involves paying a 10% deposit up-front and then making further payments on specified dates while the property is being constructed.
Timescales aren’t always reliable and delays can be common, therefore it is best to take legal advice before following this path.
The costs of purchasing a home in the UAE can add up. In Abu Dhabi, you will need to pay 2% of the purchase price to the estate agent and 2% to the municipality as a transfer fee. On new homes you will also need to pay a Dh 5,000 fee to the developer.
Fees in Dubai are similar, with 2% paid to the Dubai Land Department (the seller also pays 2%), and 2% to the estate agency.
Foreign buyers can get a mortgage in the United Arab Emirates, but need to meet certain criteria. You will need to have been in your current job for at least six months or a year, depending on the area you are buying and your lender’s rules.
Self-employed borrowers will need to have been running their business for at least two years. It can also be beneficial to have an existing relationship with the bank, as it will be familiar with your circumstances.
One of the biggest quirks of the system is that some banks will only accept applicants who work for specific companies. This means that if you work for a government department, banking institution, or multi-national company, you are unlikely to have a problem.
If your employer is smaller or less-established, however, you may struggle to get a loan from some lenders even if you’re creditworthy.
Furthermore, it is important to have a clean credit history when applying, as lenders tend to reject applicants with poor or non-existent credit files. With this in mind, you shouldn’t apply for a mortgage until you have checked your credit file and repaired any issues.
If you have never had credit, you could consider taking out a credit card and paying it off in full each month to build up a credit history.
Mortgages in the UAE are available on a fixed-rate or variable-rate basis. Fixed terms are usually around five years, although they can be as short as one year. At the end of the fixed term, the deal moves on to the bank’s variable rate.
Fixed-rate mortgages allow you to have certainty about the size of your repayments for a set amount of time, but it’s worth considering a variable rate deal if interest rates look likely to fall. Terms are generally set at 25 years, and the loan will usually need to be repaid before the age of 70.
Mortgage rates vary significantly depending on the lender, property, and your financial circumstances.
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As of October 2019, rates start at 2.75% on a one-year fixed rate, 3.89% for three years, or 3.99% for five years. These are the lowest rates on the market, so you may need to pay considerably more.
In the last couple of years, the mortgage market in the UAE has slowed, as many buyers have instead elected to buy homes direct from developers using payment plans instead of mortgages.
Mortgage rates in the UAE can vary greatly over time, depending on the country’s economic situation and oil prices.
Expats taking out a residential loan will need a deposit of at least 25% if they are buying a property worth up to Dh 5 million. More expensive homes will require a deposit of at least 35%.
If you are looking to invest in a property and rent it out, you will need a buy-to-let mortgage, which will require a much higher down-payment of around 40-50%.
Borrowing is capped in a variety of ways. The amount you will be borrowing (including the interest) cannot be more than your total anticipated earnings for the next seven years.
In Dubai, mortgage payments are capped at 50% of your monthly income; a figure that is generous compared to the caps of 30% or 35% used in some European countries.
When applying for a mortgage, you might find that banks require you to have higher earnings than a local applicant, as some lenders consider expats to be a riskier proposition.
To apply for a home loan, you can either approach banks directly or take advice from a mortgage broker. In the likes of Dubai and Abu Dhabi, you will also encounter comparison websites where you can weigh up deals from a range of lenders.
New luxury apartments in Dubai. Image credit: Expatica
A mortgage broker can be a great asset for expat borrowers. They will be able to help you navigate the quirks of the local market and find you the right deal for your circumstances. Mortgage applications in the UAE are usually processed in the space of a few weeks.
It can be helpful to get an agreement in principle before making a full application. An agreement in principle involves the bank giving basic approval for your loan in advance of you finding a property. This then allows you to go and make an offer on a home knowing it’s within budget.
When applying for a mortgage, the documents you will need may vary depending on which bank you are using.
Lenders are likely to ask you for the following:
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The main steps for getting a mortgage are as follows:
There are more than 30 lenders in Dubai, however, some won’t offer a loan to expats or non-residents. Foreign lenders are only allowed to do business in the UAE if they are recognized by the central bank.
Those who aren’t recognized cannot place a mortgage against a property’s title deed. This means that if the borrower defaults, the bank wouldn’t be able to repossess the property.
Some of the main expat-friendly lenders in the UAE include:
When taking out a mortgage in the UAE, you will need to pay a fee of 0.25% of the balance to register the loan. Your lender may also charge you a valuation fee and require you to pay for mortgage protection insurance.
Buildings insurance is mandatory when taking out a mortgage in the United Arab Emirates. Whether you take out contents insurance is up to you. Insurance policies can be very affordable, and you can either purchase buildings and contents separately or as a package.
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How much you will pay depends on the value of your home and belongings. As a rule of thumb, your yearly premium can be around 0.1% of the combined property value and contents.
Repayment mortgages are the main type of home loan in the UAE. These deals involve paying a set amount each month for the duration of the mortgage term. You will usually pay by setting up a direct debit from your bank account on the same date each month.
Interest-only mortgages are less common. These involve paying just the portion of interest each month, and then needing to pay off the whole principal amount at the end of the term. As these loans are risky, they are often only available with terms of five years.
The mortgage market in the UAE is very competitive, with banks striving to offer discounted fixed periods on their home loans. This is good news for homeowners looking to switch deals, as the best offers tend to be available to people with existing mortgages.
If you are looking to switch deal, approach your current bank first. Some lenders will consider restructuring your loan with a reduced rate for a fixed term. However, while some banks offer fee-free remortgaging, most will charge you to switch.
The good news is that the days of 3% buy-out fees are over. Rules introduced in December 2015 set the maximum fee as 1% of the balance (up to Dh 10,000).
Source: Expatica
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