I am planning to buy an off plan property in Dubai, Does banks mortgage off plan properties? What are the eligibility criteria and what is the maximum Loan-to-value I can get?

Yes, the bank do finance for off-plan projects, however only few banks are offering such facility to the clients. Even under Islamic funding this product is available which is known as Forward Ijara. As per the Central Bank regulations considering the higher level of risk to completion, the maximum LTV (Loan to Value) for mortgages on property being purchased off plans is 50 per cent regardless of purpose, value or category of purchaser.

Since handful lenders are there in the market, the choices for mortgage options are restricted. Also, banks are only contented to provide mortgage support to properties listed under Master developer, with exceptions to some projects launched by private developers also. To qualify for such mortgage facility client needs to contribute the initial 50 per cent of the down payment towards the property, thereafter the remaining 50 per cent bank would pay on their behalf to the developer as per the payment schedule in the escrow account of the developer.

The clients need to be aware of the fact that when the payment has been done to the developer, the bank would charge the interest or profit on the disbursed amount. Most banks have higher interest/profit rate during the construction period which would there on adjusted to a variable rate after the completion of the project. Also, the developer and the client need to register their properties at the land department by paying pre-registration fee of 4 per cent in Dubai. The Dubai Land Department issues a pre-registration document known as Oqood which is ideally required by the bank to release the payment to the developer.

I am planning to buy an office space for my 6 year old business. What is the process and what are the documents required for a mortgage? What is the average interest rate on offer?

The mortgage lending on the commercial properties is limited with few banks. However, the documentation requirement and process to avail commercial mortgage is similar to residential loan, but the bank would do their due diligence in screening the profile of the client and meeting the required parameters to secure the loan.

The commercial mortgage can be fortified by buying office, retail or even warehouse. Most banks are comfortable in providing loans on completed projects wherein the title deed is available in Dubai, likewise sale and purchase agreement in Abu Dhabi. However, the mortgage lending ratios can range between 60 to 75 per cent depending the client’s need and bank from where client avails the mortgage facility.

Commercial mortgage rates are normally higher than residential rate, which can be in the range of 4.49 per cent to 8.5 per cent depending on the lender also the tenure of the loan would be lower which can be up to 15 years depending on the lender.

Ideally client avails a pre-approval on the commercial lending parameters from the bank. Thereafter, providing the required property documents valuation is conducted on the property. After obtaining the final approval and completing disbursal formalities, the transfer is scheduled at the trustee office of the land department, wherein bank representative handovers the pay order to the seller.

I want to settle down my current mortgage. Is it advisable to do so before its full tenure or buyout the loan and what are the formalities?

It seems like a smart idea to choose to pay off the loan before the end of the term if you can manage to raise some surplus funds. Also, few banks do offer the free partial settlement in a year up to certain percentage, which can ideally help settle your liability in a span of 3 to 4 years time without paying any additional settlement fee. However, as per the new guideline by Central Bank, the bank can charge the customer only 1 per cent of the outstanding principal balance or 10,000 whichever, is lower to settle the loan amount.

However, if you have a plan to continue with mortgage loan and need surplus funds on the existing property, then ideally you can approach your own bank for lower rate and top up on the loan. Simultaneously you can approach other lenders as well, as they can get much lower rate with minimum entry cost. Most bank are offering free processing fee and few of them are also covering the market evaluation fee on the property as well. Upon successful buyout process client needs to re-register their property with the land department by paying a fee of 0.25 per cent of the new loan amount.

I am a businessman here since last 5 years, Can I mortgage multiple properties? What are the rates and procedures for it?

Yes, you can most banks provide mortgage up to two properties at a time and some provide more than two properties as well. The maximum Loan to Value and profit rates depends on which lender you choose. As per guideline by Central Bank, if expatriate buy a property less or equal than AED 5 million, then he can borrow maximum 75 per cent of the value of the property and if it’s more than 5 million then he can borrow 65 per cent of the value of the property. For second property or subsequent it is 60 per cent of the value of the property. Similarly, if UAE national buy a property less or equal than AED 5 million, then he can borrow maximum 80 per cent of the value of the property and for more than AED 5 million, the maximum is 70 per cent of the value of the property. For second property or subsequent investment, he can borrow 65 per cent of the value of the property. Property bought off-plan requires a 50 per cent deposit for both expatriates and UAE nationals.

Now to determine the best rate will require a detailed assessment of your business and lending profile along with the future plan. Lenders conduct their due diligence by checking your past and current financial position and your business, which ascertain your future ability to repay a mortgage loan.

As per the Central Bank Regulations the total DBR (Debt Burden Ratio) cannot exceed 50 per cent of the income also, in addition to that the maximum financing amount allowed for UAE National is up to 8 years annual income and for expatriates is up to 7 years of annual income.

I am planning to mortgage my first property in Dubai, and I am working with a private firm for last five year and my monthly salary is AED 23,000. How much money should I keep aside as savings or investments to pay mortgages if suddenly I lose my job?

It is very important to understand your financial safety valves and also you should do some homework to reach your financial and lifestyle goal. Before you start shopping for property search, I would suggest consult mortgage adviser and get a pre-approval for a mortgage first so that you know how much you can borrow. With this you know the price range of properties you should be looking at and you know how much you can afford to pay for your new home. However, banks only consider 50 per cent of the total earning as qualifying income to determine the maximum loan amount.

Now if we talk about saving as a universal thumb rule one should have at least 4-6 months expenses (including EMI) in saving bank account or in money market instrument. For a prudent financial planning it is also necessary that in good times if one can invest in such a manner that your investment corpus fund value can match at least half the outstanding principle, so that in rainy days this corpus funds can be used to redeem the part of the mortgage outstanding amount.

As Published on June 20, 2015 in GN Properties