Are mortgages getting tougher for Dubai property buyers?

Dubai: Prospective home buyers in Dubai are starting to face issues on their mortgages – in many cases, banks are taking longer to process those applications, which means that the property might no longer be available to them when all the paperwork gets done.

But more important, fewer banks are willing to offer the associated costs on a property deal. Such financing, earlier given as part of the mortgage, would go to paying off the 4% registration fees to Dubai Land Department and the usual 2% commission to the broker.

This means that property buyers have to come up with their own funds to pay off the registration and broker fees. This is where many end-user buyers are facing a serious problem. “Being told that I will have to come up with the extra cash to finance our purchase has been a big letdown,” said an investor who recently took a mortgage for an apartment in JVC. “Banks routinely used to lend the extra funds to ease an investor’s entry into the property market. That’s being cut off for genuine end-users.”

Banking industry sources did not provide any confirmation on whether they have changed their policies on financing the additional costs involved in a property deal. If there is a tightening, this will impact buyers who are looking for ready properties or those projects which have become eligible for mortgages.

The 4%+2% adds up to a bit

Shivam Dubey is Associate Partner for Mortgage Advisory at YOUAE Mortgages. He says, “Currently, if an expat wishes to purchase a property valued at Dh1 million, a 20% down payment is required. When buying from the secondary market, additional costs total 6% – 4% for Dubai Land Department and 2% for brokerage – bringing the total cost to Dh1.06 million.

“Earlier, most local banks would finance 80% of these associated fees, amounting to Dh48,000 on a Dh1.06 million deal, which eased the burden on buyers regarding the overall down payment.”

Currently, if an expat wishes to purchase a property valued at Dh1 million, a 20% down payment is required. When buying from the secondary market, additional costs total 6% – 4% for Dubai Land Department and 2% for brokerage – bringing the total cost to Dh1.06 million.

“Now, those buyers now need to provide the full Dh200,000 down payment along with an additional Dh60,000 from own funds. As a result, the total down payment will rise to Dh260,000, compared to the previous Dh212,000.”

Banks reduce risks?

For UAE banks, lending to finance home purchases have been lucrative for the last 3 years, more so as mortgage rates had gone up since March 2022. But since November, industry sources had been talking about banks slowing down on such lending. Many thought it was part of the standard response towards a year end.

The trend however has not changed in the first weeks of the new year. Now comes the cutting off on financing the DLD and brokerage fees, which was such an integral part of earlier mortgage disbursals.

Developers push low down payment, direct financing

Developers worry that any tightening on mortgage lending will affect their prospects. Many of them continue to lower down payment requirements and even extend payment options at 0.5%-1% a month basis.

The absence of financing for ‘associated fees’ on a property purchase will certainly impact secondary sales in Dubai.

Amit ChakravartyElevate Mortgage Consultants.

That might be OK for offplan sales, but mortgage financing typically kicks in after a project goes past 50% on the construction side. The other obvious need would be to finance sales of ready homes in the secondary market.

“The absence of financing for ‘associated fees’ on a property purchase will certainly impact secondary sales in Dubai,” said Amit Chakravarty at Elevate Mortgage Consultants.

Looking at it in another way, this also means end-users need to have their own funds ready if they are going ahead with buying a home…