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What's the catch?

When the property market here first started up developers were looking for a 25% to 30% down payment as standard.

Gradually over the last two years it's got less and less which is good news for buyers.
If someone is not able to save much money then this is a good deal as it only requires a 5% down payment.

The only downside is the mortgage repayments are going to be higher as a result so buyers would have to calculate first whether they could afford them.

This is a particularly good deal for an investor as it means they would be using less of their own capital to buy the property.

This would free up more money for them to spend on buying other properties to rent out if they are building up a portfolio of properties to rent out in Dubai.

But for somebody who is buying their first place to live in you would wonder why they cannot afford a property with a bigger deposit given that they are going to have to pay a mortgage of several thousand dirhams each month.

The question is if you have not managed to save enough money for more than a 5% down payment - then would you be able to pay off a 95% mortgage?

On the other hand that is often the situation with buyers who have only just arrived in Dubai and who haven't yet been able to save up that much money.

I checked the interest rates which are the standard rates and they have not been loaded up to make up for the low down payment. The rates are not listed in the advert though in case they go up.

No mortgage repayments are due until handover - but you don't get anything for nothing in this world and they will probably round up the interest on the stage payments that has been accrued and add it to your loan when the time comes for the repayments to start.

Customers have the choice of finance from either Dubai Bank or from Tamweel and I would advise customers to look at the following conditions in order of importance to decide which one to go for: interest rates or profit rates, early redemption penalties and charges.

Interest rates are what are going to be the most expensive - the charges are going to be a one off charge.

Early redemption penalties in Dubai can range from 0% to 3% and if you were an investor and you bought a property then after eight months you knew you were going to sell it, then that 3% is going to make a big bite into your profit.

It would make a lot of sense to get a mortgage with a low early redemption penalty.

This deal overall is a good one and it indicates two things: One that there's a confidence in the market and two, the ambition of certain lenders to get into the market more deeply - especially Dubai Bank who are relatively new to the mortgage market.

Chris Allen can be contacted on 050 655 8719 or by email on chris@sphereme.com

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