If you are looking to stay in the UAE for several years or more, the cost of renting often outstrips what you’d pay if you bought. However, high down payment requirements in the Emirates can be a barrier for many. In this article, I’ll give you tips on saving for your down payment and how you can make your upfront savings go further.
Down payment requirements in the UAE
The UAE Mortgage Cap law requires non-UAE nationals to have a cash down payment of at least 25% of the property value, and UAE nationals to have a down payment of 20%, plus associated purchase costs. This goes up 35% if your property is over AED 5 million and 40% if you’re buying your second or third property. This means you’ll need a clear savings plan as well as a good idea of how much you want to spend.
How to save for your down payment
First, do you have savings or investments you can cash in?
This may sound obvious, but if you have savings or other investments outside of the country, you can bring them over to UAE to fund your down payment. I recommend using one of the established currency exchanges in the UAE, as they tend to offer better rates than the banks. Get in touch and we’ll advise who the best people are to talk to.
If you have property, either in the UAE or outside, you can also consider releasing equity / cash from this property to fund the purchase of another property.
Do you have family members who you will inherit from?
If you are comfortable doing so, it may be worth talking to family members about helping you to fund your down payment. This is particularly relevant in countries such as the UK, where a tax of up to 40% is charged on the value of a person’s estate. Having an open and frank conversation with immediate family members is worthwhile, no one wants the tax man taking a large portion of any inheritance.
How to make your down payment go further
To help you get set up, some lenders allow you to defer mortgage payments initially
If you’ve put all of your savings into purchasing your property, you may struggle to pay your mortgage initially. To help with this some banks allow you to defer your mortgage payments for up to six months, helping you get back on top of your finances before your mortgage repayments start. However, before deferring repayments, it’s worth speaking to an independent mortgage advisor about whether this is the right option for you as you’ll pay some additional interest on your deferred payments.
You can add your purchase costs to some mortgages, meaning you can put more towards your down payment
On top of your 25% down payment, you also need to pay about 7% of the property’s value in upfront purchase costs, eating into your savings and leaving you with less money for your down payment. To help with this, some banks allow you to add most of the upfront purchase costs to your mortgage, giving you more upfront cash to put towards your down payment and allowing you to purchase a higher value property. Adding 4.5% of fees to the mortgage can increase your budget by around 18%!
Once you’ve got your down payment, speak to an independent mortgage advisor and get pre-approved
An independent mortgage advisor such as ourselves will be able to assess what your maximum purchase price is based on your income, liabilities and how much cash you have. We have access to exclusive offers with banks that you wouldn’t get by going direct because of the volume of business we put with them. We will also advise on how you can get the most out of your upfront savings, as well as taking all of the hard work out of finding the best mortgage and getting pre-approved.
It’s important that you make sure you obtain mortgage pre-approval before doing any serious property hunting. This is because signing a sales agreement (Form F / MOU) requires the buyer to give a cheque for 10% of the purchase price – if you commit before getting mortgage approval and are subsequently refused bank finance, you’re at risk of losing your deposit.
By Brendan Kennelly, Senior Mortgage Advisor at mortgagefinder.ae