Get the mortgage first and the property second. Shop around, both on your computer and in the bank branches. Be willing to haggle. And be sure not to forget about all the ancillary costs. Harvey Jones speaks to the experts
It is easy to fall in love with a property. Arranging a mortgage to pay for it takes a little longer. With 31 mortgage lenders in the UAE, it is worth taking time to find the right deal for you.
You should get your mortgage in place before you start looking for property in earnest, says Raman Muralidharan, a regional head of customer value management at HSBC. "Once you have your approval in principle, you know exactly how much you can borrow, and your property price range. At that point, you can start property hunting seriously."
If you don't have your finance in place, you risk finding the property of your dreams, only to lose it because you're in no position to bid. Or you may lose the 10 per cent deposit that you are obliged to put down to secure a property, if you are subsequently turned down for home finance.
Under Central Bank rules, your monthly mortgage instalments, and other debt repayments, should not consume more than 50 per cent of your income.
You can get a rough idea of how much your mortgage will cost each month by using a free online digital calculator offered by many lenders, including HSBC, Mr Muralidharan says.
Many applicants simply go to their existing bank for a loan, but you may get a better deal by shopping around to compare rates and product features.
If that sounds daunting, you can ask a mortgage broker to do the legwork for you, says Sam Wani, certified mortgage adviser at Independent Finance, Dubai.
They can also can help with application forms, mortgage insurance, salary transfers, liability letters and other paperwork.
Or you can do it yourself, comparing deals at the growing number of price comparison websites, such as Souqalmal.com and Moneycamel.com. These show rates both from international banks operating in the UAE, such as Barclays, HSBC and Standard Chartered, and Islamic finance from local lenders such as EmiratesNBD, Mashreq and Abu Dhabi Islamic Bank.
These sites allow you to compare mortgage rates, loan-to-value ratios, maximum loan amounts and other mortgage features such as cash back, says Richard Paul, director of UAE valuations at the property broker Cluttons.
"It isn't too difficult to find the best deal yourself. Although mortgage choice is growing, it is nothing like, say, the UK, where there are more than 10,000 loans to choose from."
You might even be able to do a spot of haggling. "If you find a good deal from one lender, you could use that to get a better deal elsewhere. Lenders are unlikely to cut their headline rates, but they may offer, say, a lower fee or higher loan to value, depending on the product."
Legal fees tend to be lower than in the West and the conveyancing process swifter.
Personal factors will affect the type of loan you can get, or whether you are offered a loan at all. "You will be in a better position if you have been here sometime, have a stable job, a family, and are committed to the area. If you are single and have just been here for a few months, getting a mortgage can be tricky," Mr Paul says.
You might face obstacles you would never expect in the West, says Warren Philliskirk, associate director at Mortgage International Business Dubai. "Banks don't like two unrelated people buying together, whether partners and friends, and even other family members, although father and son is fine. It isn't a problem for single women, though."
Banks feel safer offering loans on villas. "Apartments are thought to be slightly more risky, because there is a greater supply, but many lenders will still offer mortgages on apartments on the same terms."
You are free to pay off your loan early, typically with a 1 per cent early foreclosure charge. Or if you want to borrow more money later, you can apply for a top-up loan from your own bank.
Expats can typically borrow up to 85 per cent of a property's value, and Emiratis 90 per cent. The Central Bank has suggested introducing a loans value cap to cool the property market that would reduce the maximum loan value to 75 per cent for expats and 80 per cent for Emiratis for initial purchases, and 65 per cent and 70 per cent for further purchases.
You also have to decide whether to take a fixed or variable rate mortgage, Mr Philliskirk says. "The most popular type of deal is a two-year fixed, with rates starting at around 3.99 per cent. You can get a five-year fix at 4.99 per cent but there is little interest in them, because few people expect interest rates to start rising in the immediate future."
These deals are much cheaper than before the financial crisis, when mortgage rates were as high as 9 per cent.
When working out how much you can afford, don't forget to calculate the cost of setting up a mortgage. This will include an arrangement fee, typically around 1 per cent of the loan value, a valuation fee of around Dh3,000, and the cost of compulsory life and household insurance.
If you use a mortgage broker, you will also have to budget for their fees.
That dream property could be yours. With a little effort, you can find a dream mortgage to pay for it.
