Dubai is a great city for property investors. Since 2003, new and seasoned investors from across the world have been purchasing freehold buy to lets for their portfolios.
With the announcement of the World Expo 2020 seven years ago (rescheduled for October 2021 due to COVID), property has become an even more lucrative investment. It’s well documented that property and rental prices increase a great deal in host cities before, during and after Expos. Rental enquiries alone rose by 10% in Milan after the start date of the 2015 Expo was announced.
But when you’re purchasing a rental property in Dubai, you can’t go for a standard residential mortgage; you need a buy to let mortgage instead.
If you’re unsure of how to get a buy to let mortgage in Dubai, this blog explains everything you need to know.
What is a Buy to Let Mortgage?
A buy to let mortgage is a specific option for anyone who wants to purchase a property as an investment as opposed to a home for themselves. For the most part, they work on the same principles as standard mortgages:
- The bank loans you money over a set period of time
- You pay the full amount back at the end of your mortgage term
However, there are a few key differences, which is why lenders won’t grant you a standard mortgage if you plan to rent out your property.
Some buy to let mortgages have an option for interest only. This means that every month of your mortgage term, you only pay the interest on the loan and not the capital.
Let’s say there’s a property you want to buy and rent out. It costs AED 1 million and you pay a 25% deposit. Now, you have a loan for AED 750,000 over 25 years at an interest rate of 3%. This is what you could be paying each month:
- AED 1,875 with an interest-only mortgage
- AED 3,556 for capital and interest
Your monthly payments are a lot lower, but at the end of the interest only period, you still owe the lender the full AED 750,000.
You can get a full repayment mortgage if that suits you better, but to find the best buy to let mortgage deals and a lender who is happy with this, you’ll need to speak to an expert broker first.
How to Get a Buy to Let Mortgage
Obtaining a buy to let mortgage is very similar to how you would get a residential mortgage in Dubai. First, you should go through the pre-approval process, which usually takes five to seven working days to complete.
This gives lenders the opportunity to assess your eligibility to buy property, so they may ask to see:
- A copy of your passport
- Wage slips from your current employer
- Six month’s worth of bank statements
If you’re a career investor and don’t have an employer, you may need to provide more evidence that you can afford to pay back the mortgage in full.
Finding a Property
The best piece of buy to let mortgage advice we can give you is complete pre-approval before looking for a property. If you start the property hunt first, you may end up disappointed if the banks won’t lend you money or you can’t negotiate terms that suit you.
Finding a property can be the toughest step in the process and it also has the potential to be the longest. You’ll need to buy in a popular rental location, which means finding a spot with:
- Great transport links
- Nearby schools
- Plenty of shops
- Green space or nature spots
- Bars / Restaurants
Remember, any property you purchase to rent out isn’t just an investment. It will be someone’s home, so you should only buy in an area if it has everything a person, couple or family need to live comfortably (depending on your target market).
Obtaining for a Buy to Let Mortgage
With pre-approval in place and a suitable property in mind, the last step is to obtain a buy to let mortgage. This step is more in-depth than pre-approval and will include answering some of the same questions you answered previously such as:
- How much income you earn and the source of your income
- If you have an existing debt
- If your family status has changed (ie. marriage, divorce, children)
They’ll also want to know more details about your property, so expect questions on:
- The type of property (flat, house, villa etc.)
- Whether you plan to renovate and if the property has relevant planning permissions
- If you already have tenants lined up
To make sure the process runs as smoothly as possible, here are our top tips:
- Speak to a professional broker to find the most suitable lender and mortgage option
- Make sure your credit file is clear. Missed payments can be a red flag
- Don’t max out your credit card. It could look like you’re struggling financially
- Make sure to have the full deposit in your account ready to go
Finding the Best Buy to Let Mortgage Deals
You’ll have plenty of banks offering you “the best buy to let mortgage deals”, but only an independent broker with no ulterior motive will be able to source the right mortgage to suit your needs.
Rather than focusing on a product that works in the bank’s favour, our advisors will approach all the suitable lenders in Dubai and negotiate the best rates. Then, we’ll present you with our choices, so you can go with the right option for you and your circumstances.
For straightforward buy to let mortgage advice, the expert and knowledgeable team at Expat Mortgage is on hand to help. Get in contact with us today to find the right mortgage to make your property investment as lucrative as possible.