Mortgages in the United Arab Emirates are readily available to expat borrowers looking to buy or invest in property. This helpful guide explains what you need to do to get on the property ladder there.
Before searching for your dream home, it is important to get to grips with how mortgages in the UAE work. This guide includes the following information on the topic:
- Mortgages in the United Arab Emirates
- Should you buy property in the UAE?
- Who can get a mortgage in the UAE?
- Types of mortgage in the UAE
- Mortgage rates in the UAE
- How much can you borrow for a UAE mortgage?
- How to apply for a mortgage in the UAE
- Mortgage costs in the UAE
- Property insurance in the UAE
- Mortgage repayments in the UAE
- Refinancing a mortgage in the UAE
- Useful links
Mortgages in the United Arab Emirates
The United Arab Emirates has become an increasingly popular destination for expats, especially in business-friendly areas such as Dubai and Abu Dhabi. In recognition of this trend, the mortgage market in the UAE is now well-established, with international and local lenders offering home loans to expats. Both residential and buy-to-let mortgages are available to foreign nationals living in the UAE, although their criteria varies.
Should you buy property in the UAE?
Millions of expats live in the UAE, but many still choose to rent; either due to the cost of buying, uncertainty about how long they will be living abroad, or the costs involved in a property purchase.
Foreign buyers in the UAE can purchase apartments and houses in specified areas that contain freehold developments. Many expats purchase new homes off-plan, directly from a developer. This often involves paying a 10 per cent deposit up-front and then making further payments on specified dates while the property is being constructed.
Timescales aren’t always reliable and delays can be common, therefore it is best to take legal advice before following this path.
The costs of purchasing a home in the UAE can add up. In Abu Dhabi, you will need to pay 2 per cent of the purchase price to the estate agent and 2 per cent to the municipality as a transfer fee. On new homes you will also need to pay a Dh 5,000 (around €1,230) fee to the developer.
Fees in Dubai are similar, with 2 per cent paid to the Dubai Land Department (the seller also pays 2 per cent), and 2 per cent to the estate agency.
Who can get a mortgage in the UAE?
Foreign buyers can get a mortgage in the United Arab Emirates, but need to meet certain criteria. You will need to have been in your current job for at least six months or a year, depending on the area you are buying and your lender’s rules.
Self-employed borrowers will need to have been running their business for at least two years. It can also be beneficial to have an existing relationship with the bank, as it will be familiar with your circumstances.
One of the biggest quirks of the system is that some banks will only accept applicants who work for specific companies. This means that if you work for a government department, banking institution, or multi-national company, you are unlikely to have a problem.
If your employer is smaller or less-established, however, you may struggle to get a loan from some lenders even if you’re creditworthy.
Furthermore, it is important to have a clean credit history when applying, as lenders tend to reject applicants with poor or non-existent credit files. With this in mind, you shouldn’t apply for a mortgage until you have checked your credit file and repaired any issues.
If you have never had credit, you could consider taking out a credit card and paying it off in full each month to build up a credit history.
Types of mortgage in the UAE
Mortgages in the UAE are available on a fixed-rate or variable-rate basis. Fixed terms are usually around five years, although they can be as short as one year. At the end of the fixed term, the deal moves on to the bank’s variable rate.
Fixed-rate mortgages allow you to have certainty about the size of your repayments for a set amount of time, but it’s worth considering a variable rate deal if interest rates look likely to fall. Terms are generally set at 25 years, and the loan will usually need to be repaid before the age of 70.
Mortgage rates in the UAE
Mortgage rates vary significantly depending on the lender, property, and your financial circumstances.
As of October 2019, rates start at 2.75 per cent on a one-year fixed rate, 3.89 per cent for three years, or 3.99 per cent for five years. These are the lowest rates on the market, so you may need to pay considerably more.
In the last couple of years, the mortgage market in the UAE has slowed, as many buyers have instead elected to buy homes direct from developers using payment plans instead of mortgages.
Mortgage rates in the UAE can vary greatly over time, depending on the country’s economic situation and oil prices.
How much can you borrow for a UAE mortgage?
Expats taking out a residential loan will need a deposit of at least 25 per cent if they are buying a property worth up to Dh 5 million (€1.2m). More expensive homes will require a deposit of at least 35 per cent.
If you are looking to invest in a property and rent it out, you will need a buy-to-let mortgage, which will require a much higher down-payment of around 40-50 per cent.
Borrowing is capped in a variety of ways. The amount you will be borrowing (including the interest) cannot be more than your total anticipated earnings for the next seven years.
In Dubai, mortgage payments are capped at 50 per cent of your monthly income; a figure that is generous compared to the caps of 30 per cent or 35 per cent used in some European countries.
When applying for a mortgage, you might find that banks require you to have higher earnings than a local applicant, as some lenders consider expats to be a riskier proposition.
How to apply for a mortgage in the UAE
To apply for a home loan, you can either approach banks directly or take advice from a mortgage broker. In the likes of Dubai and Abu Dhabi, you will also encounter comparison websites where you can weigh up deals from a range of lenders.
A mortgage broker can be a great asset for expat borrowers. They will be able to help you navigate the quirks of the local market and find you the right deal for your circumstances. Mortgage applications in the UAE are usually processed in the space of a few weeks.
Mortgage agreements in principle
It can be helpful to get an agreement in principle before making a full application. An agreement in principle involves the bank giving basic approval for your loan in advance of you finding a property. This then allows you to go and make an offer on a home knowing it’s within budget.
Documents to get a mortgage in the UAE
When applying for a mortgage, the documents you will need may vary depending on which bank you are using.
Lenders are likely to ask you for the following:
- A copy of your passport;
- Proof of residence in the UAE and proof of your current address;
- Financial documents, such as proof of salary, bank statements, or your tax return
UAE mortgages: step-by-step
The main steps for getting a mortgage are as follows:
- Decide whether to approach the bank directly or use a broker;
- Do your research to find the right type of mortgage for your circumstances;
- Obtain an agreement in principle from the bank and ask for a letter providing evidence of this;
- Find a suitable property within your budget and make an offer;
- Once you have agreed a price, pay your deposit to confirm your purchase and agree a completion date;
- On the completion date, the mortgage lender will release the funds to the seller
Expat-friendly mortgage lenders in the UAE
There are more than 30 lenders in Dubai, however some won’t offer a loan to expats or non-residents. Foreign lenders are only allowed to do business in the UAE if they are recognised by the central bank.
Those who aren’t recognised cannot place a mortgage against a property’s title deed. This means that if the borrower defaults, the bank wouldn’t be able to repossess the property.
Some of the main expat-friendly lenders in the UAE include:
- HSBC – Global banking giant offering mortgages to buyers with minimum earnings of at least Dh 15,000 (€3,700) a month. Mortgages are only available on selected developments. Overpayments are allowed, subject to a minimum overpayment of Dh 30,000 (€7,400).
- Mashreq – UAE-based bank offering loans to residents and expats. Home loans are available to employed or self-employed expat residents earning at least Dh 15,000 (€3,700) a month at a value of up to Dh 10 million (€2.47 million).
- Emirates NBD – Dubai government-owned lender offering mortgages of up to a maximum of Dh 15 million (€3.7 Million). Mortgages are offered up to 75% loan-to-value, and a pre-approval facility is available.
Mortgage costs in the UAE
When taking out a mortgage in the UAE, you will need to pay a fee of 0.25 per cent of the balance to register the loan. Your lender may also charge you a valuation fee and require you to pay for mortgage protection insurance.
Property insurance in the UAE
Buildings insurance is mandatory when taking out a mortgage in the United Arab Emirates. Whether you take out contents insurance is up to you. Insurance policies can be very affordable, and you can either purchase buildings and contents separately or as a package.
How much you will pay depends on the value of your home and belongings. As a rule of thumb, your yearly premium can be around 0.1 per cent of the combined property value and contents.
Mortgage repayments in the UAE
Repayment mortgages are the main type of home loan in the UAE. These deals involve paying a set amount each month for the duration of the mortgage term. You will usually pay by setting up a direct debit from your bank account on the same date each month.
Interest-only mortgages are less common. These involve paying just the portion of interest each month, and then needing to pay off the whole principal amount at the end of the term. As these loans are risky, they are often only available with terms of five years.
Refinancing a mortgage in the UAE
The mortgage market in the UAE is very competitive, with banks striving to offer discounted fixed periods on their home loans. This is good news for homeowners looking to switch deal, as the best offers tend to be available to people with existing mortgages.
If you are looking to switch deal, approach your current bank first. Some lenders will consider restructuring your loan with a reduced rate for a fixed term. However, while some banks offer fee-free remortgaging, most will charge you to switch.
The good news is that the days of 3 per cent buy-out fees are over. Rules introduced in December 2015 set the maximum fee as 1 per cent of the balance (up to Dh 10,000 – approximately €2,450).