Stock - Dubai property
UAE banks are offering fixed pricing starting from 3.49% for one year, 3.99% for three years, and 4.49% for five years. Image Credit: Bloomberg

Dubai: Payment plans of 1 per cent per month are back in full force as potential property buyers in Dubai juggle with the various options open to them, even as the cost of financing a property purchase through mortgages turns ever more costly.

“The 1 per cent direct-from-developer deals is seeing a lot of buyer participation - and some developers are even going for under 1 per cent,” said an estate agent. “There is a developer offering 0.8 per cent deal with a seven-year payment plan (on properties valued at Dh1.2 million and over). Now that the bar has been lowered from 1 per cent, it won’t be long for others to join in.

“They will need to as end-user buyers will find the constant rate hikes forced by the US Fed Reserve impacting on their budgets.”

Market sources say a combination of extended payment plans and at 0.8-1.0 per cent monthly instalments could still be the best way for new cost-conscious buyers to enter.

Existing mortgages

But what about those with existing mortgage payments on their property buys? These buyers and UAE banks would do well to think about mortgage refinancing. “A few banks are introducing cutting-edge products to encourage the mortgage buyout process with minimum switching cost for the property owner,” said Dhiren Gupta, Managing Director at 4C Mortgage Consultancy in Dubai.

Dhiren Gupta, Managing Director at 4C Mortgage Consultancy in Dubai Image Credit: Supplied

Once the property buyer has decided to refinance, then comes the slightly tricky part. Certainly, they should opt for a lock-in period - but how long should that be?

Currently, banks in the UAE are offering 1-5 years of rate lock-in. The obvious answer would be to fix the mortgage rate for five years, thus offsetting more rate hikes from the US Fed. The downside is that the current high-rate environment need not last - and then the mortgage taker will be left with a fixed rate when the rest of the market is seeing rates being lowered. A bit of a Catch 22.

Rate variations

UAE banks are offering fixed pricing starting from 3.49 per cent for one year, 3.99 per cent fixed for three years, and 4.49 per cent for five years. In addition, there are variable rates starting from 0.49 per cent linked with EIBOR (Emirates Inter-Bank Offered Rate).

Should you pay off early?

“It depends on individual preferences,” said Gupta. “It does make sense to settle partial outstanding when you have surplus funds to reduce the current loan outstanding faster.

“Ideally, it is advisable to reduce the term of the loan on doing a partial settlement. This would increase the principal contribution towards the monthly instalment, which adds up to lower interest cost on the principal amount.”

Most UAE banks have capped prepayment up to 20-30 per cent of the outstanding loan with no penalty charges. Any further payment in advance of the agreement with the lender could incur costs of 1 per cent of the prepaid amount.

There are some hard calculations mortgage takers have to make, and none of the choices before them are easy enough. That is, until the US Fed finally calls time on the current round of rate hikes.

And when it comes to new property buyers, the question before them is whether buy direct from developer and agree to the payment plans, or opt for a mortgage.

With developers in Dubai going aggressive on the 1 per cent payment plan, buyers do have options. Even the 0.8 per cent one.

Decided to refinance a mortgage? Here are the costs

The exit cost to the current bank is 1 per cent or Dh10,000, whichever is lower. In most cases, this cost is covered in the liability letter and paid by the new lender, which is added to the new loan amount.

There’s a valuation fee of Dh2,500-Dh3000, excluding VAT.

A Dubai Land Department mortgage registration fee would include the release of mortgage charges varying from Dh1,290 for a conventional mortgage and Dh1,560 for a Sharia home finance, along with new registration charges of 0.25 per cent of the new loan amount. The fee could vary.

A ‘trustee fee’ of Dh4,200 is applicable in Dubai.

The issuance of a new title deed in Dubai would cost Dh580.

Most banks do not charge any arrangement or processing fee. “Only a few banks are willing to refund your valuation fee cost and settlement fee after the switching process is executed,” said Dhiren Gupta.