I have a mortgage on a three-bedroom villa in Dubai and was recently made redundant from my job. I was given two months’ notice and will receive my final salary and end-of-service benefits in the middle of August. Rather than selling up, I think the best option is to rent the property out because I plan to relocate to my home country of Belgium. However, I have a couple of concerns.
Firstly, when my final salary payment hits my account, will the bank freeze my account? Will this in turn make it difficult for me to travel as I won’t be able to clear the rest of the mortgage there and then. I need the rental income to pay off the rest of the home loan. Also, I’d quite like some of that cash to help me set up when I return home – I don’t want it all to go on the mortgage so how do I get around that?
I don’t have any other debts but I do have a credit card that I pay off every month. I plan to close that at the end of this month. My current salary in the financial services sector is Dh38,000 but I won’t be earning anything when I return to Europe – instead I will be job hunting. I have about three months of savings to tide my family of three over but the gratuity would extend that by a couple more months, which would give me valuable time to find a job.
I purchased the property for Dh2.6 million in 2014 with a 25 per cent deposit and I have some equity in the property. I hope I will be able to rent it out for about Dh125,000 a year, which would just about cover my mortgage payments of about Dh9,000 a month and the service charges. However, I may need an agent to manage the lettings so I assume there would be fees involved there too.
Also, do I need to change the mortgage as I will be living in another country and letting the property out rather than living in it myself?
How do I approach the bank about all of this? Would I need to maintain an account here to manage the rental process? My mortgage provider is the same bank my salary is paid into. And how do I prevent the bank from seizing my full gratuity amount? PD, Dubai
Debt panellist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank
Developing a plan that ensures the continuity of your mortgage repayments will work in your favour once you initiate discussions with your lender about your move. Your timely credit card repayments will further strengthen your case and display your commitment in responsibly handling your finances.
In terms of your final salary payment, you will need further clarity from your bank about your specific situation. Generally, lenders do include a clause in their agreements which entitles them to collect their receivables through end-of-service payments as a precautionary measure against default. Similarly, it is common for a bank to freeze your bank account when they are notified by the employer of your job termination. However, given your great track record, there is a possibility they forego these actions if you inform them in advance.
That being said, it is vital you have an extensive conversation with your lender about your current plans to relocate, your active job hunt, and how you intend to keep up your mortgage repayments. Additionally, with no legal charges against you and no reason for your bank to request a travel ban, you should be able to exit the UAE without any complications. Your UAE bank account will likely be converted to a non-resident account and maintained for the purpose of your mortgage.
Typically, lenders have no issues with being repaid from abroad as long as the borrower has proven their ability to fulfil their financial obligations. Since their main interest is to receive their repayments on time, converting your property to a rental should not be an issue if they are aware. However, check the terms and requirements with your bank and potential employer.
You may also want to consider exploring the possibility of renegotiating with your lender for more favourable terms, such as forbearance or lower interest rates to make it easier for you to keep up with the payments.
Debt panellist 2: Warren Philliskirk, director at Mortgage Finder
Given the current situation, the banks are being encouraged by the Central Bank of the UAE to be more flexible with customers at this time. The last thing your bank will want is for you to go into default on your mortgage, so they may be more willing to come up with a solution.
To start, reach out to your bank, either by phone or email, and be completely upfront about your plans. If you have a salary transfer already set up with the bank, then it may have already been informed by your employer that you are entering your notice period. As you will no longer be a resident, the bank may request you change the mortgage to an alternate product, but this is dependent on the bank and the circumstances.
At this point, your best option would be to ask the bank for a payment holiday, for a set number of months, while you move back to Europe and look for a new job. If this is not accepted, then ask to at least switch your mortgage to an interest-only product for a set period of time. Moving on to an interest-only product will lower your monthly repayments as you won't be paying back the capital too. This will ease the pressure while you look for a new job and for tenants to rent the property.
With regards to your bank account, as you are keeping the property you will need to retain a bank account here to manage the rental process and make the mortgage repayments.
Debt panellist 3: Stuart Ritchie, chartered financial planner at AES International
The freezing of your account depends on your bank as some people we’ve worked with have had no issues, whereas others have had their accounts suspended.
The reason for this is that when you leave a job in the UAE, your employer is obliged to tell the bank that this is your final salary payment – which includes end-of-service benefits. As such, the bank becomes aware that this is a final payment, and that you’ve moved on from the company which can be interpreted as you about to leave the country. UAE banks’ responses to this are varied. Some people have found no issue when moving jobs, while others have had their entire financial lives suspended.
Legally, the bank isn’t allowed to freeze your accounts unless you’ve actually defaulted on a certain amount of payments. As long as you are proactive and speak to your bank ahead of time, you should not have a problem.
This is especially important if you plan on leaving, so you can switch the mortgage from a residents' mortgage to a non-residents' mortgage. This may carry a slightly higher rate of interest.
In terms of managing the rental process, you will need to keep your UAE bank account in order to continue to make the mortgage payments. However, it will be converted to a non-resident account which means that you won’t be able to draw on credit against it, such as an overdraft. You will also be able to use the account for paying third parties such as letting agents, maintenance, etc. Given that you will not have an overdraft, you’ll need to make sure that there is always enough money in the account to cover any outgoings.
The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to firstname.lastname@example.org