There has been a steady increase in mortgage transactions across the UAE, in line with the current market trend which has shown a downward shift in property prices over the past few years in the emirates, said a report.

The average size of a home loan taken out in the UAE in May was Dh1.31 million. This compares to an average loan size of Dh1.67 million in May 2018, according to data from Mortgage Finder, a leading mortgage consultancy in the UAE and part of the Property Finder Group.

“We have seen a shift from an investor-led market to an owner-occupied market, with more end-users buying to live in the property. This is likely due to the downward shift in prices which has made home ownership more affordable and achievable,” remarked Chris Schutrups, the managing director of Mortgage Finder.

The reduction in property prices over the past few years has made home ownership more affordable, he stated.

The mortgage consultancy has also seen enquiries go up by 59% between April 2018 and April 2019, and submissions (to banks for mortgage approvals) by 78%.

With reference to interest rates, Mortgage Finder estimates that buyers prefer opting for a fixed rate in over 80% of enquiries. A fixed interest rate is an unchanging rate charged on a mortgage. It might apply during the entire term of the loan or for just part of the term, it added.

“However, with recent predictions from the US Federal Reserve about rate reductions this year, we are seeing a few, more sophisticated buyers opt for lower margin variable rates,” stated Schutrups.

After the UAE Central Bank introduced the 3% early settlement fee, refinancing transactions and mortgage transfers between banks have reduced considerably.

“We estimate that there has been about a 75% reduction in the number of refinancing transactions and buyouts that we do. However, it is worth noting that these only accounted for about 5% of transactions in 2018,” Schutrups stated.

When it comes to redeeming the mortgage early, some banks will differentiate between using cash to settle the mortgage or refinancing. The difference could be as much as 2% of the outstanding loan amount.

The most common example is banks charging 1% when you pay off in cash upon selling your property, versus the 3% they would charge if you were to settle it by refinancing, said the expert.

Consumers should also consider the consequences of leaving the UAE as some banks might charge a higher rate if you are a non-resident. Some even go as far as forcing buyers to sell their property before leaving the country.

On the positive side, some banks will allow for penalty-free overpayments of up to 10-20%. Considering the average length of a mortgage is 7 years, it is possible to use the allowable overpayments to avoid paying any penalty fees, said the Mortgage Finder.

"Also, consider whether the bank that you are considering borrowing from will allow you to include any of the upfront fees required when buying within the mortgage - namely the 4% Dubai Land Department fee and the real estate agent fees," noted Schutrups.

"Being able to include just 4.5% of the upfront fees into the mortgage can increase buying power by around 18% as more of your cash can be put towards deposit rather than covering the fees," he added.-TradeArabia News Service