Dubai: There is no more time to waste for prospective property owners in the UAE wanting a mortgage – if they wait until year end, they are going to be saddled with a likely 7 per cent plus hit compared with about 5 per cent now.
Mortgage-based property deals in Dubai have dropped significantly from levels seen last year, and matters have not been helped by the three increases on US and UAE interest rate hikes by a combined 1.50 per cent since March. But those who have made up their minds that they are going to invest in a home and financed through a bank cannot keep waiting to close the deal.
Already, from May onwards – when there was a 0.50 per cent increase in interest rates – there was a marked increase in enquiries with lenders on home finance packages. These homeowners were trying to get a ‘better’ deal before the June 15 announcement of another hike, this time by 0.75 per cent.
So, what should prospective homeowners be aiming for on their mortgage deals?
Try offsetting
This is when the property buyer opens an interest-paying savings account with the bank from which he/she has taken a mortgage. “The interest paid on the savings account would be at the same rate as the mortgage,” said Michael Hunter, co-founder of the mortgage advisory platform Holo. “Customers can essentially offset the interest earned on their savings against what they owe towards their mortgage payment. This means more of the capital is being paid on a monthly basis, which reduces the term of the loan and by default reduces the paid interest rate.” (Note: Not all mortgage lenders in the UAE offer offset savings accounts.)
According to Hunter, such interest-bearing savings account do help with generating some returns from funds. “For example, if you borrowed Dh1 million at 3.99 per cent and have Dh150,000 saved in your linked account, you could pay off your mortgage faster and the comparative rate would become 3.11 per cent,” he added. “The higher the amount in your savings account, the lower your payable interest rate will be.
Over the last three years we have seen a shift to consumers looking for the cheapest rate, rather than offset. I would expect as we go back into a higher rate environment, buyers will shift their mindset back to using a product like this.
Lower processing fees
Banks could while raising interest rates on loans could also ease some of the pain on customers by lowering the processing fees. In Dubai’s property market, “The split between cash and mortgage buyers in year-to-date is 57 per cent with cash buyers leading,” said Husni Al Bayari, Chairman of D&B Properties.
Banks will loath seeing a further widening of this gap. Discounts or outright waiver of bank processing fees could be offered, and mortgage takes should be alert to any such possibility. Banks could also be willing to come up with free property valuations ahead of the deal going through. And for existing mortgage takers, re-financing options will open up in the near term, offering a chance to reduce the size of their commitments.
Developer incentives
No help from banks on reducing the burden of mortgage payments and the steady hike in rates? Then, find out how much developers are willing to help out.
More developers are offering increased flexibility often offering longer payment plans on offplan projects, specifically in the post-handover stage.
“Developers can also offer a waiver on property purchase associated costs such as property registration fee and maintenance fees,” said Al Bayari.
“Mortgage buyers can consider rent-to-own schemes since these come with lower upfront installment and do not require taking out a mortgage. Other options they can explore is co-signing to qualify for a loan, borrowing against life insurance, or using cryptocurrencies in Dubai’s regulated market." (The last option, paying via crypto, had been gaining traction in the property market, but with their values going through some sharp erosion, it may take some time before property buyers can derive worth from such deals.)
