UAE sees a steady increase in mortgage transactions

The reduction in property prices over the past few years has made home ownership more affordable

More end-users in the UAE are now taking out mortgages to buy and live in the property.

More end-users are now buying property to live in the UAE. The average size of a home loan taken out in the UAE in May 2019 was AED 1.31 million. This compares to an average loan size of AED 1.67 million in May 2018, according to Mortgage Finder, the No 1 mortgage consultancy in the UAE.

This is in line with the current market trend which has shown a downward shift in property prices over the past few years in the UAE.

We have seen a shift from an investor-led market to an owner-occupied market, with more end-users buying to live in the property. This is likely due to the downward shift in prices which has made home ownership more affordable and achievable

Chris Schutrups, Managing Director, Mortgage Finder

The consultancy, part of the Property Finder Group, has also seen mortgage enquiries go up by 59% between April 2018 and April 2019, and submissions (to banks for mortgage approvals) by 78%.

With reference to interest rates, Mortgage Finder estimates that buyers prefer opting for a fixed rate in over 80% of enquiries. A fixed interest rate is an unchanging rate charged on a mortgage. It might apply during the entire term of the loan or for just part of the term.

However, with recent predictions from the US Federal Reserve about rate reductions this year, we are seeing a few, more sophisticated buyers opt for lower margin variable rates

Chris Schutrups, Managing Director, Mortgage Finder

After the UAE Central Bank introduced the 3% early settlement fee, refinancing transactions and mortgage transfers between banks have reduced considerably.

“We estimate that there has been about a 75% reduction in the number of refinancing transactions and buyouts that we do. However, it is worth noting that these only accounted for about 5% of transactions in 2018,” Schutrups points out.

What to watch out for

When it comes to redeeming the mortgage early, some banks will differentiate between using cash to settle the mortgage or refinancing. The difference could be as much as 2% of the outstanding loan amount. The most common example is banks charging 1% when you pay off in cash upon selling your property, versus the 3% they would charge if you were to settle it by refinancing.

Consumers should also consider the consequences of leaving the UAE as some banks might charge a higher rate if you are a non-resident. Some even go as far as forcing buyers to sell their property before leaving the country.

On the positive side, some banks will allow for penalty-free overpayments of up to 10-20%. Considering the average length of a mortgage is 7 years, it is possible to use the allowable overpayments to avoid paying any penalty fees.

Adding upfront fees

“Also, consider whether the bank that you are considering borrowing from will allow you to include any of the upfront fees required when buying within the mortgage – namely the 4% Dubai Land Department fee and the real estate agent fees. Being able to include just 4.5% of the upfront fees into the mortgage can increase buying power by around 18% as more of your cash can be put towards deposit rather than covering the fees,” recommends Schutrups.


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