If you are planning on living in Dubai for an extended period, you may be better suited to purchasing a home, as opposed to renting long term. Equally, if you are looking for a property for purely investment purposes, there are few global cities in the world that offer as healthy a return on investment through rental yields as Dubai.
Whatever your reasons for looking for a property in the city, you need to understand the type of mortgages available, and the steps needed to get one set up. The good news is that this is possible for a foreign resident, and mortgage providers are well equipped to deal with expat and non-resident mortgage applications, whether you are looking for an investment or for a new family home.
What types of mortgages are available?
As an expat, you can apply for a mortgage in Dubai either for a home you intend to live in, or as an investment property. However, depending on your circumstances, and the specific property you want to buy, the deposit amount you are asked to pay can vary. The first thing you need to decide is whether you want a fixed rate or variable rate product.
Fixed Rate Mortgages:
Fixed rate mortgages will guarantee the same interest rate will be applied for the duration of the agreement. This is usually in the range of 3 years and may even be availed of for up to 10 years, after which the mortgage will revert to a flat rate set by your bank. Post 2018, Dubai’s mortgage rates have decreased, with the EIBOR Rates currently at an all-time low. This is been largely due to the financial stimulus extended by the government which is contributing towards the development of the country and simultaneously, having a positive impact on investor sentiments. When compared to the same time last year, we currently see fixed rates for as low as 2.21% with zero processing fees (subject to terms and conditions).
Variable Rate Mortgages:
Your alternative option is to take a variable rate mortgage. Unlike a fixed rate product, these can cost more, or less, depending on how the interest rates change. They’re a good idea if you think that rates are going to fall within the term of your loan and it should be noted that over the last three years, mortgage rates in Dubai steadily decreased. As we stand today, fixed margins from banks go as low as 1.45% when compared to the same time last year with the rate of 2.99%.
In Dubai it’s also possible to get an interest repayment only mortgage, but the term of this won’t be longer than five years.
We also have special approvals (subject to client profile) where banks are willing to cover the DLD transfer fee of 4% and agency commission of 2%, over and above the approved mortgage percentage.
Different banks and brokers will offer different products, and not every customer can access all of the loans available. You will likely need to take specialist advice to help you understand all the products available to you.
Should I use a mortgage broker?
You can choose to have a broker help you process your mortgage facility. There would be some brokerage fees payable from your side (as is the case in any part of the world) but the broker will ensure that they are handling your transaction from A to Z, while source the best option for you.
In some cases, for example, where you are unsure of your eligibility for a mortgage, it might be a good idea to take expert advice from a qualified mortgage broker. This is especially important if you are new to the Dubai mortgage market and not familiar with all the options or regulations.
Getting your mortgage arranged in Dubai should not take more than a couple of weeks. It’s a good idea, though, to get an advance approval from the bank to confirm what you’ll be lent. Then once you find a home you like in your budget, you can finalise the mortgage with ease, and without delays.
The exact paperwork you will need will depend on the bank you use. However, you can expect to be asked for the following:
- Copies of your personal identification documents (passport)
- Documents to prove you’re creditworthy (usually bank statements, proof of your wages, tax returns or a letter from your employer)
- Documents to prove the affordability of the mortgage
All over the world, affordability is an important deciding factor in whether or not you’ll be offered a loan. In many countries you must be able to prove that the repayments on the total amount of debts you hold amount to no more than 30% to 35% of your usual income. However, in Dubai the law only requires that your debt payments come to no more than 50% of your income, so many banks are more flexible with this than in other countries.
The step-by-step process
To get a mortgage in Dubai, you’ll generally need to follow these steps:
- Choose a mortgage that suits your needs.
- Hand over the paperwork requested to get a finance pre-approval, which is sometimes called a mortgage offer in principle. Your bank will give you a letter confirming what they will lend you.
- Find a property within your budget and agree a purchase price with the seller.
- Pay your deposit to secure the sale and agree on a completion date.
- Provide any additional documentation needed to confirm your mortgage, including searches on the specific property you have chosen.
In Dubai, when arranging a mortgage, you can also expect to pay a deposit and fees including the following:
- Mortgage registration fee: 0.25% of the value of the mortgage
- Bank fees including processing fee, property valuation fees and insurance registration fee
- Loan protection insurance (mortgage life insurance): usually compulsory, the costs vary depending on the value of your property and mortgage, and your personal circumstances.
Depending on the situation you might find that there are other costs associated with arranging the loan. However, the major initial outlay will be the deposit you have to pay to secure the loan and the sale. For example, if you are buying an off-plan property this could be up to 50% of the total cost.
Glossary of important terms
- A loan-to-value (LTV) ratio – this is the value of the mortgage expressed as a percentage of the total property value.
- Repayment mortgages – with a repayment mortgage you pay back both interest and the capital amount borrowed over the term.
- Interest-only mortgages – here, you pay only the interest accruing on the capital borrowed, with the capital to be repaid in full at the end of the term
- Fixed rate mortgages – the interest rate is fixed for a set period of time, usually one, three or five years. After this period the product will revert to a ‘follow on rate’ set by the bank
- Variable rate mortgages – the amount you pay in interest can be changed by the bank.
Buying a new home is a big step, and when you’re buying in a new country, it can be a daunting process.
Many expats have put down roots in Dubai, by buying a family home or investment property. As a result, the local financial services sector is experienced in dealing with foreigners, and as long as you’re in an appropriate financial position, you should be able to easily get a mortgage that suits you as an expat buyer.