This column highlighted in an article this month (Emirates Business, February 5) that home loans in the UAE had become too costly and called for inter-bank competition to address this barrier to home affordability.
The point was that mortgage rates for borrowers had remained the same even after the Central Bank started to reduce the base rate last year. However, in any market it always pays to shop around before buying and mortgages are no different. One reader drew my attention to the competitive mortgage rates being offered by some fairly new entrants such as the Commercial Bank of Dubai, which start from five per cent, compared to the lowest profit rate of 7.5 per cent offered by major players.
This CBD mortgage is an adjustable rate fixed at 2.1-2.2 per cent above Eibor, which is presently 2.9 per cent. To qualify for this rate you will need to have high income with no other loan commitments and at least a 10 per cent deposit.
This means a Dh4 million loan over 25 years will cost around Dh26,000 per month, including capital repayments. This is enough to afford a three-bedroom villa and is cheaper than renting at the present time. Of course, rents might fall below mortgages and the capital values of homes could go down as well, but this is a good starting point for a homeowner in Dubai.
It also makes buy-to-let a realistic business proposition in Dubai, and the CBD is prepared to take rental income into account when assessing your income for loan purposes. CBD also offers a fixed processing fee of Dh10,000 on properties above Dh1m and no early redemption penalties.
On the other hand, a major international bank charges a stiff penalty of four per cent on early repayments and, as you never know when you might want to repay a loan, this is something to keep in mind. But demand for mortgages is so high in Dubai that there is plenty of business for all the home loan providers and some of the better deals are not being marketed hard as the departments are already overwhelmed with applications.
Emirates NBD, introduced its Offset Home Loans last September and is also reckoned to have some of the best mortgage offers. In the Emirates NBD plan, the outstanding is offset by credit balance on a parallel current account. Effectively you can use income and any other cash you wish to save to keep down the mortgage.
But the headline mortgage rate is still 8.5 per cent, although this will depend on your financial circumstances.
But now that cracks are appearing in the wall of mortgage rates, it can only be a matter of time before the cost of borrowing for home loans falls in the UAE.
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