Fundamentals of UAE mortgage products
Everyone dreams of living in their own house. But realising such a dream is never quite easy, so most people turn to bank loans to buy their dream homes. With over 15 of the leading retail banks offering home financing, how does one arrive at the best choice? A quick way to compare mortgage products is to use online comparison sites such as Mymoneysouq, Souqalmal and Yallacompare.
Banks have multiple mortgage products and the deals would differ depending on certain criteria, such as a borrower’s citizenship, borrowing history, the flexibility of the interest rate over the term of the loan or whether a customer’s salary is transferred to the lending bank.
As Ambareen Musa from Souqalmal points out, “The home finance market in the UAE is very competitive, with over 50 banks and finance companies competing for a share of 9 million residents — not nearly as big as many other banking markets.”
So borrowers will have to look closely to find the most suitable mortgage product for them. This article aims to provide a high-level comparison of the multiple products available by the key criteria from a borrower perspective.
Minimum income
Banks adhere to a minimum monthly income to qualify a customer for a home loan. The maximum loan amount can be 50-90 times the monthly income. The minimum salary for a home loan can be around Dh10,000-Dh20,000, depending on the bank and the borrower’s citizenship. “The average minimum salary requirement of all banks in the UAE is Dh17,000, varying from Dh7,000 to Dh40,000,” says Shiv Kumar Gupta, director and co-founder of Mymoneysouq.
Interest rates and profit rates
Interest rates are determined by the Emirates Interbank Offered Rate (EIBOR). Few banks charge a fixed rate for one to two years and then convert to an adjustable rate. The reducing rates range from 2.5-8 per cent, with the majority of banks charging near the 3 per cent mark on a reducing balance.
s Musa notes, “More banks are willing to match the home finance rates offered by their competitors. Based on a recent investigation of the cost of home finance in the UAE, we found that the average starting profit rate of Islamic home finance products was 4.4 per cent, only marginally higher than that of conventional mortgage products (4.2 per cent).”
Down payment
Mymoneysouq analysis shows that 90 per cent of the products provide 70-80 per cent of the property value as a loan, with the rest paid as equity by the borrower. Few banks provide as much as 50 per cent of the property value for specific projects and citizens. The thresholds are, however, clearly regulated by the UAE Central Bank.
Around 90 per cent provide 70-80 per cent of the property value
Maximum finance
A third of the banks provide maximum finance of Dh10 million. In very special cases, loans of up to Dh50 million are also advertised. The disbursed loan amount is highly subjective based on borrower demographic, existing debt burden and the property valuation.
With such high degree of personal variance, it is advised to make a thorough analysis or appoint a mortgage broker who can guide borrowers through the multiple banks and products to choose from.
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