Did you know that the best mortgages are not necessarily the cheapest? With lenders dangling cut-price mortgage interest rates to entice home buyers, I caught up with Richard Musty, managing director, Lloyds TSB Middle East, for his insights on the UAE mortgage scene and tips to help you make the most informed decision.
Many people might be tempted to soften the blow of such big-ticket purchases by going for the cheapest mortgage deal in the market. Instead, do your own research and be sure to factor in the additional costs — legal fees, valuation charges, insurance tie-ins and so on, says Richard. Or to make matters easier, approach a mortgage broker, who could tailor-make an offer based on your current circumstances.
"Customers should consider carefully what type of product would best suit their personal and financial situation. They should also think about any special features, such as repayment flexibility, as well as the financial soundness of the lender," cautions Richard.
Often, banks will aim to offset an inviting initial interest rate with steep repayment charges later on down the line. This is when customers are bound to want to shop around for a more attractive deal, and Richard's advice is to switch to a different product or provider when there is scope for cost saving:
"We recommend that our customers review their mortgage to make sure that it is the best fit for their personal circumstances. Even a reduction in monthly outgoings of Dh500 can add up to thousands over the lifetime of a loan."
For expatriates in the UAE, it is also worth taking note of the mortgage's repayment tenure. Given the transient nature of the local expat population, most mortgages have a short repayment tenure. However, banks such as Lloyds TSB Middle East favour long-term relationships with clients. "We tend to favour ‘life-time' purchases as opposed to speculative, short-term transactions. Our mortgages tends to be longer on average," he says.
Given the number of non-performing loans in the local property sector, banks can't be blamed for trying to reduce risk in their mortgage portfolio. Lloyds TSB Middle East has pegged the loan-to-value ratio of mortgages at a modest 70 per cent, and its products are now aimed at ready-to-occupy properties and owner occupiers.
"Our focus has been on properties in Dubai since this is where we have seen the most demand," says Richard. "Mortgages can be arranged on completed villas and apartments with select property developers, including Emaar, Nakheel, Union Properties and Al Hamra."
Meanwhile, we've all heard of properties that have dropped in value below the amount that is owed on the mortgage. Rather than miss mortgage payments and face legal consequences, most banking executives ask home owners to review financial arrangements with their relationship manager.
"We always advise our customers to contact us should their financial circumstances change. We can help them to restructure their debt into manageable targets. Sometimes, customers can just pay the interest on the loan for a few months until they have their finances back on track," Richard suggests.
Lloyds TSB was recently in the news for the management's decision to reduce its international footprint. However, it is business as usual at its UAE subsidiary, according to Richard. "No decisions have yet been taken on which locations we will exit from. There will be no impact on the level of service that customers receive," he explains.
Finally, the visa extension rule — which extends visas for foreign homebuyers to three years from six months — is being touted as the next big thing in the UAE property market. But it would be premature to link a rise in mortgage enquiries to the visa rule at present.
"It is too early to attribute any increase in interest to any particular initiative," says Richard. "We have seen a general increase in enquiries for mortgages since the start of the year. This suggests a more positive outlook towards mortgages in the market and increased buyer confidence as well."