Following a hiatus of two-and-a-half years, buyers are coming back as the UAE property market starts to show signs of stabilisation. “Buyer confidence has increased due to Dubai property prices being 25 per cent cheaper compared to prices in 2013,” Property Monitor reports. “The number of transactions are increasing month on month.”
Interest rates, however, have gone up over the last 18 months. The UAE Central Bank’s three-month Emirates Inter Bank Offered Rate (Eibor) benchmark rate bottomed out in the first quarter of 2015 at 0.64 per cent, in stark contrast to 2008’s 4.6 per cent. What’s interesting to observe though is that the 2015 lows are nowhere to be found and there have been steady increases recorded in the last 18 months.
The three-month Eibor has increased by more than 100 per cent over the same period and the rate now stands at 1.3 per cent. The short to medium-term outlook in the UAE also projects higher interest rates, although they will probably not spiral out of control as some experts have claimed. This makes the case for locking in mortgage rates with fixed-rate mortgage products.
Unfortunately, there are currently no products in the UAE market that offer a five-year fixed term. Furthermore, when five-year fixed-term rate options are offered, they are usually a lot higher than, say, one or two-year fixed options. The best rates one might expect over five years are no more than 4.5 per cent.
Some banks do offer a fixed monthly instalment for up to 25 years, which in fact, is correct. However, according to Jean-Luc Desbois, managing director of Home Matters Mortgage Consultants, stable monthly repayment terms do not mean that the bank’s variable rate will not change. “As a result, you may be looking at a repayment shortfall, which can take you by surprise,” says Desbois. “In addition, the shortfall also carries over to the balloon payment required at the mortgage term’s end or when the property is sold.”
Consumers really need to be on the lookout for mortgage advisors who are promoting products by positioning variable rate incorrectly, i.e. showing fixed-margin components as being “true” for the mortgage term.
Benefits of a two-year variable rate
One of the best products in the market right now is a two-year rate, which includes the option of having refixing at prevailing fixed rates, within a 24-month window. This option is quite unique in the UAE mortgage market and the initial two-year rate is currently the lowest in the market at 3.25 per cent. “We offer a product with a 3.25 per cent interest rate at an initial two-year rate and a 50 per cent discount on the standard bank processing fee, because we believe it is one of the most feasible and economical mortgage solutions in the market today,” says Sawan Karia, director of Home Matters Mortgage Consultants.
First and foremost, choosing the right mortgage product means choosing the right mortgage advisor. There are a plethora of banks and mortgage firms in the UAE offering hundreds of mortgage products. With everything that’s on offer, the pros and cons of each can easily be misinterpreted and, in a worst-case scenario, you might end up losing thousands of dirhams, not to mention your peace of mind.
So, to make the right choice, it’s very important to choose a seasoned mortgage advisor who knows the market inside out. Here’s what you should expect from your bank or independent mortgage advisor:
- Before anything else, check if the mortgage firm or provider has the appropriate mortgage license issued by the relevant authorities, including a Certified Mortgage Broker (CMB) licence from the Dubai Real Estate Institute (DREI).
- Ask for a copy of your advisor’s trade licence. Ask them how long they’ve been providing mortgage advice in the UAE. A number of firms haven’t been in the market as long as they claim, so it’s good to run a quick check.
- If they are quoting UK mortgage qualifications, it means very little as the UAE market is vastly different.
- Ask how many banks your mortgage advisor has ties with. A number of mortgage firms will lay false claims to having access to every single bank in the market. This isn’t true and you can actually get really great mortgage products from a relatively small pool of banks.
- A verbal commitment is of little significance. Always ask your advisor or bank to put down the offered mortgage terms in writing.
- The mortgage firm should not be charging you a fee if your application is denied due to factors beyond your control.
- It’s always a good idea to steer clear of mortgages that are linked to the bank’s own internal base rate. These are high-risk products as opposed to Eibor-based rates, since banks are always in control of their rate.
- Do not fall for the “low first-year interest rates” trap. Products offering the lowest initial rate aren’t the best ones as those rates can easily be raised after a year or two.
- It’s perfectly OK to consider advisor recommendations coming from an expat site or social media channels; however, you should only shortlist an advisor that comes recommended by multiple connections. For example, if an advisor is being recommended again and again by different parties, especially across different sites, this is a very good indication that person has a solid reputation in the market.
- Ask if your advisor only provides mortgage advice or does the firm he/she represents also offer conveyance consultation. This is very important as this can assist significantly if you are purchasing a property.
There are many mortgage options in the market right now and the banks are highly competitive. By taking the above tips into consideration, you will find the most ideal and economical mortgage solution that caters to your individual needs.
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