Realty Talk: Experiences of a home loan shopper

This week I thought I would do some mystery shopping as the mortgage market is now over one year old and staff should now be more knowledgeable and better trained than the last time I tried this a year ago.

I posed as a client called Richard (original, eh!), who needs financing for a family home on the Jumeirah Islands project by Nakheel where starting prices are around Dh3 million, but was unsure how much I could get on financing.

My salary is Dh25,000 (wishful thinking), and I have no other loans or liabilities and have been working in Dubai for two years.

The following I am already aware of. To get financing I need to be working here for a minimum of one year. I can borrow a maximum of 60 times my monthly salary providing the monthly mortgage payment does not exceed 55 per cent of my net monthly income ie after deducting any regular loan payments I may already have. I must fund a minimum of 10 per cent deposit on the original price plus any premium, agency and transfer costs from my own pocket.

Budgeting

At present, some lenders will consider financing a percentage of the premium but this amount does vary considerably. I calculated that based on my salary I can only have 60 times Dh25,000 that is Dh1.5 million on finance. This would be over 15 years as most lenders do not extend beyond this term for expatriates, but will do 25 years for UAE nationals. This would cost me Dh13,400 per month 53.6 per cent of my salary which is within the expenditure criteria.

I tried speaking to some agents first but none of them had any idea of what I was talking about, and didn't want to get involved in giving any advice on financing whatsoever. Understandable, I suppose!

I always suggest to prospective clients that before looking for property they should get their financing approved in order to save time and money for both them and myself. I also give them some idea of what they could borrow based on what I already know and tell them to take the following documentation to the lenders a salary certificate from their employer stating length of employment, designation and salary, six-month bank statement and their passport or labour card as identification document.

I also give them the following websites to look up to get a feel for what the companies are offering. These are www.tamweel.ae, www.amlakfinance.com, www.mashreqbank.com, www.uae.hsbc.com and rakbank.ae.

They are easy to navigate but only hsbc gives enough details to actually work out for yourself what you can borrow. By the way, the Tamweel site has a useful mortgage calculator. The others require you to phone their adviser line to find out how much you can borrow. Therefore, I decided to try phoning the adviser lines and see how helpful they were. I got the following responses.

First I went to A, a mortgage finance company. A very polite woman answered who said I could borrow 90 per cent of the property value and calculated my mortgage payment to be Dh23,346 per month, even though I had already told her my salary was only Dh25,000. I questioned this, as I would have no money left after paying the mortgage. After speaking with other advisers, she said it was not possible to calculate the maximum borrowing without more details. After persisting, she was able to confirm that the maximum would be 60 per cent ie Dh1.8 million after an independent valuation of the property and that the rate would be 6.65 per cent.

I then phoned T, another mortgage finance company. A young man answered who said a mortgage adviser would contact me within 48 hours, but was unable to work out how much I could borrow. He did mention that Tamweel could lend up to 80 per cent of the original price plus up to 15 per cent of the premium but could not be sure how this would apply in my circumstances.

Next, I went to M, a bank. The adviser was friendly and very confident and after talking a few details confirmed that I could borrow Dh2.4 million on a purchase of Dh3 million on Jumeirah Islands. When quizzed further, as this seemed too good to be true, the adviser admitted that the amount of borrowing would be restricted to 55 per cent of my net income for the mortgage payment. He was unable to work backwards from this amount so followed up by saying the maximum would be 75 per cent of the property value. When I asked him what he meant by the property value it transpired that this was the original price of Dh1.9 million and not the current selling price of Dh3 million. In other words, Dh1.425 million. A far cry from the original assessment. This was because they do not lend on any of the premium at all.

R, a bank, was unable to give any information whatsoever other than the fact that an adviser would call me back within 48 hours, and that the maximum loan was Dh15 million.

Finally, I tried bank H, whose website was the most informative. A young man answered and was very informative, and said I could borrow 70 per cent of the Dh3 million, that is Dh2.1 million based on the current value which would be confirmed through an independent valuation. I could also have the loan over 25 years which is a real bonus as this brings down the monthly costs considerably. He also advised me with great enthusiasm that HSBC had the lowest mortgage rate in the market, but unfortunately was unable to tell me what that was, as they had not yet been informed of it!!! We had a good joke about that none-the-less. He finished off by informing me that an adviser would ring me within 24 hours to confirm what I can borrow for sure ….

So after a couple of hours of phoning I had established that I could borrow anywhere between Dh1.425 million up to Dh2.1 million. However I cannot be assured as to the accuracy of this information until I am contacted by the more experienced advisers once they have all got back to me. I will let you know of the outcome in my next article in two weeks' time!

I would advise however that before you put down a deposit on any property you get a pre-approved offer in writing.

Hindrance

The main pitfall in financing is not to accept the advice you are given on the phone. Instead, go and make a formal application and get a pre-approval in writing. Otherwise, you could lose your dream home and worse still any holding deposit you may have paid. Once you have an approval, start looking and make sure that if you place a holding deposit you allow a further 30 days to allow the lender to process the mortgage. This way if anything goes wrong, you have a bit of time. It should not normally take more than two weeks to get the mortgage offer and funds in place.

The lender is always present at the transfer where the owner is paid what he is due directly and the balance is paid to the developer. You pay the deposit to the lender. With most lenders, they will buy the property then rent it out to you at the agreed mortgage terms. They then guarantee to hand it over to you after the mortgage is fully paid up. This way they make a profit and not interest. It is this anomaly that makes selling it difficult, as you have to pay off the mortgage first, before you can resell it! But that's another pitfall to which there is no easy solution!

The writer is managing director of Best Value Property Consultants.