UAE Mortgage – Is This the Right Time to Apply for It?
Published on 2020
Reading Time : 5 Mins
Due to the global pandemic and the troubles it has brought upon us, applying for a mortgage is the last thing people have in their minds. A home mortgage in UAE is certainly a hefty financial commitment. Such a commitment can be hard to manage in these tough times due to the ‘uncertainty’ factor hovering above us. People aren’t sure how long their jobs are going to las
Having said that, there are some factors in the hindsight that indicates now is the best time to apply for a home mortgage in the UAE. The lockdown has resulted in favorable interest rates due to the reduced demand. Furthermore, the loan-to-value ratio has been reduced while fee waivers and early settlement fee removal are other benefits people can enjoy in the current situation. The combination of all these factors depicts this is the right time to apply for a home mortgage. if you have already applied for one, consider renegotiating your existing mortgage.
As per real estate experts, this is the lowest level of interest rates recorded in the UAE in the last 15 years. The first quarter of the year 2020 witnessed an increase in mortgage applications as well. This change in the demand curve of the mortgage applications is also attributed to the significant decrease in interest rates in the US for the month of March as the UAE currency is pegged to the US dollar.
March 2020 also witnessed a 50 basis point decrease in the benchmark interest rate by The Central Bank of the UAE. It also lowered the rate applicable on one-week certificates in the same month by 75 basis points. This has led to banks coming up with more competitive offers.
Consequently, people now have abundant choices to mortgage a home at budget-friendly rates. This has not only proven to be beneficial for those looking to mortgage a house, people who have a mortgaged property on variable rates can also take advantage of this situation. They will have to pay a lower monthly payment due to reduced interest rates.
Despite all these perks, a lot of people will still face trouble in managing the funds to pay off the mortgage. However, the stimulus packages worth Dh256 billion announced by the government can help in this regard. This package allows the borrowers to get a loan relief from the lending bank. They can enjoy this relief for a period of six months. Those who are buying the home for the first time in the UAE, they can have an increase of 5% in the long-to-value ratio. The maximum limit for the loan-to-value ratio for UAE nationals and expats is 85% and 80% respectively. Along with that, they are entitled to get their processing fees completely waived.
Another reason why you should take the plunge now and look for a mortgage option is the decrease fixed rate. It is as low as 2.7% for one year. With approximately 25% decrease in fixed rates as compared to last year, home buyers can now get it at somewhere between 2.99 % to 3.5% if they are looking for 3 to 5 years range.
Some banks are also making limited time offers to beat the competition and get more applicants on board. These offers are limited to specific areas or properties for a particular time period only. Therefore, those who want to make a move, they will have to take a quick decision. Some of the prominent areas where such offers are still available are Yas Acres, Al Reem Island (The Bridges), and Al Saadiyat Islan (Mamsha & Jawaher). Numerous banks including Abu Dhabi Commercial Bank, First Abu Dhabi Bank, and Abu Dhabi Islamic Bank offer financing options to apply for these properties, albeit on some terms and conditions. Read on this post for list of best banks for mortgages in UAE.
The decrease in interest rates and property prices in the UAE has also resulted in more people wanting to climb up the property ladder. Various online platforms that accept mortgage applications have witnessed an increase in the number of applications received in the last couple of months. Most of these applications (approx. 80%) have come from buyers i.e. end-users, not investors.
Other than that, 60% of the total applications relate to refinancing their mortgage. This increase in the number of applications received for refinancing can also be attributed to other reasons apart from a reduction in the rates. As the mortgage early settlement fees was reverted to 1% from 3% or Dh10,000 in October, whichever amount is lower; this coupled with low interest rates resulted in a lot of people considering refinancing options.
Despite these lucrative offers, there are still some factors to consider when planning to apply for a mortgage or refinancing option. Some banks have limited lending and refinancing capacity. Thus, carefully analyze your options before taking a plunge. Furthermore, verify your employment status. With companies laying off employees in current times, job security has become a prominent issue. Thus, in a situation where you have lost your job after your mortgage application has been accepted, the bank may reconsider the offer.
So, before you start looking for a property for sale in UAE or a mortgage offer, take into consideration your job status and other financial resources. The approval for your application depends heavily on this factor.