When Australian expatriate Daniella and her husband decided to buy a house in Dubai, she knew the toughest task would be to secure a mortgage that met all their requirements.
Having previously taken out a home loan in Dubai, Daniella was familiar with the way the mortgage sector worked.
"My husband and I have dealt with a number of mortgages. We had already taken out a mortgage in Dubai, which we subsequently paid off. We searched on the internet, called up some banks and fixed a few interviews ourselves with the banks to find out what exactly the deals were and the interest rates. That was quite time consuming. So this time around, we decided a mortgage broker might be a better option." Despite the fee, Daniella says using a broker saved her much time and hassle.
When she started house hunting, Daniella's real estate agent introduced her to Jean-Luc Desbois of Home Matters, a mortgage consultancy firm.
"We had an initial round of discussions with Jean-Luc and he asked us about our expectations, needs, budget, the areas we were interested in and our previous experiences with banks," she says. "He did a comprehensive review on where we were, then came back to us with a few options."
"The main things we were looking for were the interest rates, fees and charges associated with starting a mortgage. I think someone who focuses only on interest rates may not be getting the best deal. There's more to it than the interest rates. We wanted a hassle-free mortgage so in addition we were also interested in finding a bank that could offer good customer service and follow up. We were also looking for flexibility; we wanted a mortgage that we could pay off quickly. Basically something with minimal penalties should we want to close the mortgage earlier than the allotted time. We had a few restrictions like that. Most of the banks he contacted had 2 to 3 per cent closing penalties and extra repayment penalties. Finally he was able to find us one bank that met all our criteria - HSBC."
Finding the right product
Daniella wanted to buy a villa in Victory Heights in Dubai Sports City, and found out that she would have to arrange for an Islamic mortgage if she wanted to own a property there. So she chose HSBC's Sharia-compliant mortgage product, Amanah Home Finance.
"An Islamic loan is a great solution, especially for this region in the current economic climate," she says. "With banks not wanting to lend very much, the structure of an Islamic mortgage is a suitable option."
Despite banks tightening their purse strings, she feels it is possible to get a mortgage that suits your requirements, provided you have all the documentation in place and the means to pay it back.
"I don't have a lot of leverage. I am a professional and get paid quite well. So as a result, applying for a mortgage at this stage in my career ended up being a good option for me and the banks didn't have any problems because I have been working in this company for four years. We have no plans of moving to any other place and we are kind of settled here. I think that's one thing banks will look for."
Although Daniella was able to produce most of the documents required for the application, she was surprised when the bank asked her company to add a clause in the salary letter stating that they had no intentions of making her redundant.
"I thought that was a bit unusual because I have never been asked to arrange a letter that has this clause in it. I think it's purely because of the crisis. Banks are looking for the least risk possible so they wanted someone that had the deposit or could sort of find the deposit. I was able to do that so they offered me 75 per cent mortgage, which was the highest they would give."
She was asked to transfer her salary to HSBC for the loan to be approved. "Banks are being more careful now. They are not providing mortgages so quickly and easily. If you have the right mindset and won't give up, no matter what the banks want you can speak to them and sort it out. The major problem they have is the risk factor. If you are prepared to give a little and the banks are prepared to give a little, between the two parties a compromise can definitely be made."
Daniella put in the application through Home Matters in the third week of August and her mortgage was ready by the second week of September.
"How do you get a mortgage here?" That was the question John Blanch, director of operations - Golf Club Management, IMG, had in his mind when he started looking for a house.
"I had heard many stories from my friends who had arranged mortgages on their own. They told me it's very difficult to get a mortgage here, especially now. I didn't know how to go about arranging one myself so I spoke to a couple of real estate agents and they said the best thing to do was to get a pre-approval of Dh5 million and then look for a property within that range. Pre-approvals are normally valid for a month. They require no charge and once one expires you have to apply for it again. I think banks do this because a lot of people have been losing their jobs until recently."
He met a few mortgage consultants before he finally settled with Jean-Luc Desbois who gave him a number of options to choose from and also arranged a three-month pre-approval, instead of one month. John was looking for a product with a high loan-to-value (LTV) ratio, a 22-year repayment term and a variable interest rate. "The most important thing for me was LTV. In the end, I chose ADCB, which lent me 85 per cent as opposed to HSBC's 65 per cent."
Although he was also asked to produce more or less the same documents as Daniella, he didn't have to include the ‘no redundancy' clause in his salary letter. The reason for this, he says, is the list of documents that you have to submit varies from bank to bank.
People should be wary of the hidden costs associated with a mortgage, he cautions.
"For example, you buy a property for x amount of money and on top of that you have to pay other charges such as land registration and so on. Jean-Luc gave me a document that listed everything I had to pay. Earlier, another mortgage arranger had given me a quotation of the amount I was supposed to pay. But the figure Jean-Luc gave me was double that amount and it was absolutely accurate. That gave me peace of mind because the worst thing I could do was arrange a mortgage and get everything in place and suddenly find out I had to pay another Dh50,000 to get it done."
He recommends a mortgage with variable interest rates, as the rates are currently going down.
"Since I applied for the mortgage, the rate has come down from 8.5 to 8.1 per cent. I am paying Dh1,000 less every month compared to what it was before."
It took two weeks for John to get the pre-approval and after finding a villa in The Springs, it took another six weeks to complete the transfer of ownership.