Getting a mortgage (page 1 of 3)

We asked Damien Hitchen, Regional Mortgage Expert and Managing Director of Gulf Lenders Network, how buyers should go about getting a mortgage in the UAE, and what pitfalls to look out for.

Which are the main banks offering mortgages, the type of rates and repayment periods you can expect, and what the different types of mortgages are that will be on offer?

There are currently 23 lenders offering home finance to individuals and companies in the UAE market. This number has grown substantially in the four years since the inception of the freehold property market in 2002.

There were an increasing number of new entrants in 2006 and 2007, with further entries scheduled. The market providers are split between international lenders, such as HSBC, Barclays, Lloyds and Standard Chartered, and domestic banks and finance companies, such as Amlak, Tamweel and Dubai Bank.

Mortgage lending is widespread, and market estimates from the UAE Central Bank suggest that at 30 June 2007, a figure of Dhs50bn has been leant collectively by the various Lenders in respect of home finance.

In terms of products, the market has been largely characterised by basic mortgage products, with the majority of lenders providing "vanilla" variable rate, capital repayment loans - this is essentially the safest type of product from a lender perspective.

However, in 2006, we saw some level of product differentiation with the arrival of an Offset Mortgage from NBD, interest-only and multi-currency options from Lloyds and Barclays, and regular 'special offers' from lenders, such as Dubai Islamic Bank's latest 95 per cent loan-to-value, with a fixed profit rate of 6.40 per cent for two years for customers looking to purchase The Lakes properties at Emaar.

Hitchen explained: "Whilst the market is by no-means comparable with western mature markets, things are improving for the consumer. It is expected that competition will increase, and, as a result, drive product differentiation and options to the market. Due to the level of options in the market, consumers would be best advised to speak with a professional mortgage broker to explore all of their finance options before they purchase - as you would in any mature market."

Interest rates

In respect of interest rates, these vary from introductory/fixed term offers from 6.40 per cent per annum, up to rates in excess of 9.50 per cent.

However, the market 'norm' rates would lie somewhere between eight and 8.50 per cent per annum at this time. This is extremely high compared to mature markets. The rationale for these rates is the lack of a legal and regulatory framework in the market, combined with the lack of a precedent for re-possession if a borrower defaults.

However, as the legal framework continues to develop and as competition increases, there is expected to be a trend towards dropping rates going forward. In mature markets, lenders typically work on 'margins [profit]' on their portfolio of between 0.25 to 0.75 per cent, whereas currently in the UAE this average around 2.75 to 3.50 per cent. This is certainly excellent business for UAE based lenders at present.

What are the UAE laws that couples/single, unmarried/married people should be aware of, eg, next of kin rules if the male dies; what women get; whether unmarried females can't be named owners on the mortgage with their male partners?

There can be issues that consumers need to be mindful of when making a finance application.