Everything you need to know about mortgages and real estate in the UAE

The UAE, in recent times, is rapidly becoming a destination of choice for many expats wishing to invest in its lucrative real estate market. Local Emiratis are also keen to invest and are looking for suitable opportunities mainly in Dubai City and Abu Dhabi. Nevertheless, buying a property will always be expensive.

Of course, there are certain things you must comply with.

What do you need to do to meet the eligibility criteria?

Unless you are able to meet the minimum requirements, it would be futile to avail of a mortgage to buy a property. On this front, you must be of quality by respecting the following conditions:

Expertise areas

• The minimum monthly income must be between AED 8,000 and AED 15,000
• Keep in mind that the monthly installments you pay should not exceed 50% of your monthly income
• The loan period presented to you is 25 years maximum
• Only people between the ages of 21 and 65 (including expats) are eligible. The only exception offered is to Emiratis who are over the age of 70
• According to the Etihad credit bureau of the United Arab Emirates, having a clean credit history is also essential

How much can you borrow?

Borrowing in many respects is capped and governed by certain basic factors, including the following:

Of course, there are certain things you must comply with.

Maximum LTV (Loan to Value)

• If the value of the property is less than AED 5 million - 80% for the first mortgage - 65% for the second mortgage and more
• If the value of the property is over AED 5 million - 70% for the first mortgage - 65% for the second mortgage and above
• Expats and non-residents of the UAE are considered eligible for a maximum loan-to-value ratio of 50%
• In other cases, a few private banks finance off-plan projects after 50% completion and, as such, offer an LTV of 50%.
• To increase the chances of eligibility, joint applications are also allowed (in the case of siblings, couples and business partners)

What about the necessary documents?

To be able to get the mortgage, it becomes necessary to provide the basic documents, depending on your individual ability.

For employees:

• Application form, consent letter and authorization letter for office check
• Valid national ID card or passport, residence visa and Emirates ID card
• Original bank statement for the last 3 months for new customers
• Salary certificate

For the self-employed:

• Application form, loan authorization letter and office check consent letter
• Copy of business license, chamber of commerce registration, memorandum and articles of association
• Original 12-month company and personal bank account statements for new customers

For expats:

• A copy of your passport
• Proof of UAE residency and proof of current address
• Financial statements such as proof of salary, bank documents and tax returns

Understanding Mortgage Rates

To begin with, understanding how the mortgage works is quite a difficult task. Sometimes it can be complicated. However, for your benefit, we try to break down the overall cost.

Long-term rates: Base rate + EIBOR (Emirates Interbank Offered Rate)

Base rates may vary from bank to bank. Additionally, EIBOR is standard across all banks and is normally published and regulated by the UAE Central Bank.

Short-term rate: Most banks in the UAE offer a fixed rate for a short-term term, which usually varies between 1 and 3 years.

Overall, as a customer, you need to focus more on the long-term rate. By doing so, you will benefit the most, as the popular adage clearly says “the lower the base rate, the better the mortgage”.

Some important things to consider

• Mortgage pre-approval is valid between 30-90 days and that too on the basis of the bank
• Property valuation cost is usually from AED 2,500 to AED 3,000, again, depending on the bank
• Expats and non-residents of the UAE are considered eligible for a maximum loan-to-value ratio of 50%
• In the event, where your mortgage advisor might ask you to inflate the property purchase price, please refrain from doing so. Getting higher LTV by unethical means is illegal and it does not help the matter by any means. On the contrary, this might result in a situation, where your property valuation might get negative rankings
• Even before searching for a suitable property, it would be a good idea to get the pre-approval done. This will give you some extra leverage, while negotiating for better terms with the seller.
• Some additional expenses that you are likely to incur involve the likes of loan processing fees, valuation fees and property insurance.
• The UAE property market is gaining a lot of traction and is popular with most of the foreign expats. So, when it comes to investing in the property market, irrespective of your nationality, mortgages are offered by local as well as international lenders.