For Indian businessman Amitabh Saboo, 39, buying a home using bank finance was a hassle-free process. Borrowing Dh3 million at a 3.99 per cent interest rate, Saboo purchased a three-bedroom apartment in Executive Towers, Business Bay.
“If your documents, which include your company’s trade license, MOU, bank statement, passport and visa copy and Emirates ID, are in order then getting a mortgage is a smooth process. My bank’s relationship manager helped me acquire the finance easily.” However, he says it’s important to be aware of the bank’s pre-closure charges, in case you want to clear your debt early.
Sound projects and savvy customers are still seeking mortgage financing to meet their housing and investing needs with the growing demand for properties in the UAE, says Philip King, Head of Retail Banking UAE at Abu Dhabi Islamic Bank (ADIB).
“However, uncertainty around completion dates of projects under construction remains a challenge since handover delays can have a negative financial impact on customers and banks.”
With the focus on affordable housing rising in the property sector, bankers believe this division of buyers could further stimulate the mortgage market. “We are certainly seeing more affordable housing on offer over the past few months, which should encourage prospective buyers and spur growth in the mortgage market,” says Kunal Malani, Head of Customer Value Management, Middle East and North Africa, Retail Business and Wealth Management, HSBC Middle East. “The values for ready and secondary market properties are also stabilising.”
Loan values
Property buyers can get finance even for higher value properties, with banks lending up to Dh20 million.
Haresh Lalwani, Managing Director, Right Move Mortgages, reveals that for homebuyers earning a salary of Dh20,000 or above it is easy to acquire 75 per cent LTV of the property value as banks are feeling more secure than before since the exposure is within limits.
In the affordable property segment though, ownership is still a distant dream, as a person earning Dh12,000-15,000 has to arrange the 25 per cent down payment plus property buying charges from his savings, he adds.
“The interest rates remain attractive but are on the rise since early January 2016. A good deal is 3.24 per cent for the first two years, and then 3 per cent fixed margin in addition to three months EIBOR, currently at 1.10 per cent.
“However, do not fall for the catchy rates that often prove costlier from the second-year term,” he explains.
Competitive offers
Banks view home finance as a low-risk secured asset with a stickiness factor, due to the nature and life cycle of the product, says Pawan Dhawan, Head of Home Finance, Noor Bank, adding that this encourages them to continue to come out with products variants and aggressive pricing plans to attract consumers. This, in turn, leads to a low cost of funding for consumers, he says.
“The home finance market has a direct correlation with the real estate market. If the market is in wait and watch mode, the effects spill over to the home finance sector as well. Over the past 18 months, we’ve seen a contraction in the residential market, which can be attributed to factors such as market cooling measures and sentiment. However, lately we have witnessed increased activity in the sector, owing to a [larger] number of inquiries and transactions, especially for affordable developments.”
PRICING OPTIONS FROM BANKS
Pawan Dhawan, Head of Home Finance, Noor Bank, explains the varied pricing options available with banks:
1. Vanilla pricing plan: This annual pricing plan offers a fixed margin that applies for the entire term along with a variable component, which is the bank’s financing rate. The majority of institutions use the Emirates Inter Bank Borrowing Rate (EIBOR) for the variable component. Some banks use their internal base rate, which becomes the variable component instead.
2. Fixed Rate Plans: Various vendors fix their rates for two or three years, when there is no fluctuation in pricing, though clients may pay slightly higher in such schemes. Once the fixed period is over, the variable rate with EIBOR or base rate component plus a predefined margin kicks in.
3. Profit-only: This pricing concept sees clients pay only the interest/profit portion of their monthly instalments for a fixed period at the beginning of a finance term. This is usually geared towards investors who prefer a smaller monthly outlay during the initial terms, after which regular amortisation of the finance with both principal and profit portion payments are made for the remainder of the term.
