On Your Side: Due diligence before chasing a better mortgage

On your side: Our resident consultant Keren Bobker answers readers questions on mortgages and labour laws.

I read a recent newspaper article about high interest rates for existing mortgage customers, despite many banks offering far more competitive rates for new customers. I have a mortgage of Dh1 million and am being charged a rate that is at least 2 per cent more than my lender advertises to new customers. This is not fair. Am I stuck, or can I change to another lender? What else do I need to look out for? GM, Dubai

The first thing is to look at the agreement that was signed when you took out the mortgage. Look for any penalties for repaying by remortgaging with another lender, and check that the rate you are being charged is correct. I have come across cases where the rate has not been charged as agreed, so it is worth double-checking. Provided there is sufficient equity in the property, it may be possible to move to another lender - but there may be several charges, so ensure switching is worthwhile. Possible charges include a repayment penalty or fee, an application fee, valuation fee, legal charges and other miscellaneous charges. A new application would be subject to financial underwriting and some lenders also require applicants to open a salary-linked current account. There are a number of issues to take into consideration: Not all lenders offer mortgages on all properties, as each has a list of approved developers and developments. The amount they will lend depends not only on the value of the property, but also the development, the age of the applicant and their income and other liabilities. Most lenders should offer initial approval at no cost before you proceed with an application. If changing lender, it is important to check the full terms of a mortgage offer. Be fully aware of the interest rate and whether this is fixed for a specific period or variable. Most mortgages in the UAE are arranged on a capital and interest basis, also known as the repayment method. Some lenders will allow a mortgage to be set up on an interest-only basis, but then the onus is on the borrower to make provision to repay the mortgage by the end of the term.

Many companies divide up total salaries into various allowances, presumably to reduce the gratuity when one leaves. What is the current legal position on this? For example, some of my staff have, say, a basic salary of Dh12,000 per month plus various allowances, such as transport and housing, totalling another Dh8,000. Is the gratuity paid based on Dh12,000 or Dh20,000? Surely, the total income received should be based on the full amount someone earns. CD, Abu Dhabi

Article 134 of UAE Labour Law states, "The wage which is considered as basis for computation of the end of service gratuity shall not include anything given to the labourer in kind, housing allowance, transport allowance, travel allowance, overtime allowance, representation allowance, cashier's allowance, children's education allowance, recreation and social services allowance or any other allowances." The only figure that is taken into consideration is basic salary, plus any commissions that are paid on a regular basis as per the individual's contract of employment. Should an employer wish to calculate the payment in another way, they may do so, provided the employee receives no less than they are entitled to under UAE Labour Law.

I am American and have been in the UAE for several years. I have had accounts with a couple of banks and had no problems with them, nor any debts or loans. Last week I received a letter from one of the banks - one that is internationally known - saying my accounts will be closed in two months' time and I will need to find an alternative bank. At first I thought this was some kind of scam so contacted the bank to be told that the reason is because I am American. Is this some sort of prejudice against US citizens and do I have any recourse for complaint? CN, Abu Dhabi

I have heard that a number of US citizens have received similar correspondence and it is all a consequence of the United States Fatca (Foreign Account Tax Compliance Act) regulations that came into effect at the start of the year. This forces banks to report any accounts held by American citizens to the US tax authority to ensure they are not evading taxes. The act is aimed specifically at non-US banks and can lead to a 30 per cent "withholding tax" on transactions. For some banks, it will no longer be economically viable to retain accounts from some US citizens because of the additional reporting requirements and costs, which is why CN has been asked to close his account. At the present time, other banks are continuing to operate accounts for American citizens, but readers may wish to check with their own banks to ensure that they will not have the same problem.

Keren Bobker is an independent financial adviser with Holborn Assets in Dubai. Contact her at [e-mail]