When you are buying property in Dubai, getting a mortgage is a common mode of finance that is on the table. If you are still not familiar with getting a mortgage in Dubai, you can read our article before proceeding to your second mortgage.
What does a second mortgage actually mean? It simply means that the property buyer is planning to purchase a second property, which is the case in most scenarios. But it can also mean that the borrower is getting a mortgage against an existing property or getting a mortgage on a property that already has a mortgage.
Who should consider getting a Second Mortgage?
This becomes a very helpful tool for:
Existing homeowners who want to buy a second property in Dubai while owning their current home.
Investors who are trying to expand their real estate portfolio faster.
Owners who are looking to borrow against their current equity.
Homeowners who want to refinance their property.
But simply owning a property does not guarantee you a second mortgage in Dubai. The bank assesses the income, liabilities, ability to repay and other required factors as per the regulations of the Central Bank.
Source: Rulebook - Central Bank
How much can a borrower get against a secondary property?
According to the regulations set by the Central Bank of UAE, the ratio of Loan-To-Value. As of now, the LTV and the minimum deposit values for a second mortgage on a residential property in Dubai are published as follows.
Buyer Category Maximum LTV Minimum Deposit
UAE Nationals 65% 35%
Expatriates 60% 40%
Off-Plan Properties 50% 50%
Source: https://rulebook.centralbank.ae/node/2856
The above estimates mention separate values for off-plan and secondary residential property in Dubai. Banks have different requirements and limits when it comes to off-plan properties compared to the secondary properties in Dubai.
What affects the amount a lender approves?
There are major factors that the central bank highlights when it comes to approving second mortgages.
Debt Burden Ratio (DBR): The general maximum is 50% of gross salary or a regular source of income. The bank will then assess the reliability of that source to check if it is sufficient to handle the debt.
Currently Existing Loans: The bank will monitor for any existing loans or mortgages tied to the borrower to understand potential liabilities.
Interest-rate Stress Testing: Making sure that you can handle the interest rates and the range of rates that you can manage if the interest rates increase.
Loan Term: As per the Central Bank, you will receive a loan term that extends to a maximum of 25 years, but each scenario is unique.
Maximum Finance Amount: The lender decides the maximum amount that you are eligible for. Usually it’s equivalent to 7 years of income for expatriates, and 8 years of income for UAE nationals.
Rental Income: If the property against which the second loan is rented out, the income of the property, the tenancy agreement and the potential of having the property tenanted are monitored.
Sources: Important Ratios | Mortgage Loan Regulations
What are the costs that relate to secondary mortgages?
Having your first mortgage doesn’t automatically qualify or set you up to receive your second mortgage. Be aware of the costs that come along with the transaction and this depends on your unique arrangement. But make sure you account all of these and understand the total it would amount to:
The Deposit
DLD registration fee (0.25% of the mortgage value)
Admin and service fees
Processing, valuation and other Bank related fees
If you are purchasing a new property with the mortgage;
The cost of purchasing, transfer and other costs of early-settlement of the new property.
To calculate the costs for the longer run, it’s best to consider;
The interest rates and the timeline
Affordability of managing the current mortgage and the second mortgage
The condition and renovation costs of the property that the mortgages are taken against
Your income versus the projected future expenses
While the option of a second mortgage is helpful in many ways in dealing with real estate in Dubai, there are many moving parts that you should be aware of. Heading into any type of mortgage without due diligence most likely puts you in an undesirable position.
Seeking professional guidance is one of the best options a property buyer can choose to make sure there aren’t any factors that haven’t been considered, as well to understand how to navigate through the transfers. Make sure that you are educated and assisted, to make informed decisions.
Sources: Mortgage Registration | Rulebook - Central Bank