Who does not want to buy a property in the UAE? Many people look forward to taking advantage of the tax-free capital gains and returns on house rentals. Others look for family homes and lifetime investments.
For such people, the Central Bank of the UAE has introduced new initiatives and regulations that open up the UAE real estate market for other buyers from across the world. Sources suggest that nearly 13.6% of the UAE GDP comes from the real estate market only.
Before we jump into all about Reversion rates, let’s get started with understanding reversion rates.
Reversion rate is the interest that your mortgage turns to after the fixed mortgage period ends. Continue reading to know more about them.
What Are The Mortgage Types?
The two types of mortgages that you can take are:
The Fixed-rate mortgages provide a fixed term of up to 5 years. The most common fixed term is three years. After the fixed term is over, the rate will be moved to the Reversion rate, which is also known as the Follow-On rate. This gives you a short term benefit of being protected by the fluctuating interest rates due to inflation.
Variable Rate Mortgage
These loans have their interest rate changing on the basis of the Emirates InterBank Offer Rate (EIBOR). This is considered to be risky because you do not know the amount that you will have to pay every year in the form of a mortgage.
Loan To Value Ratio Has Increased By 5%
The law of UAE defines the eligibility criteria of a loan taker based on the loan to property value. In March 2020, the Central Bank of UAE took out a new rule. The rule said that all the banks and institutions could increase the LTV (Loan To Value) ratio for new buyers by 5%. This was the case for people who lived in the UAE and the foreigners as well.
This means that the foreign loan takers will get the chance to get 80%, not 75%, of their desired property value, and the UAE nationals can get 85%, not 80%. However, in the case of off-plan property, the LTV ratio remains constant at 50% for both foreigners and UAE nationals.
Debt Burden Ratio
Under the UAE Central Bank rules, you can not spend more than 50% of your income on the repayment of loans, mortgages, credit card bills, and other debts. This is the maximum debt burden ratio that you can maintain in the UAE.
Removal Of Age Limits
Earlier, the Central Bank of UAE asked for loan repayment of loans by the age of 65 by employed people and by the age of 70 by people who are working for their own business. In the previous years, this age cap was lifted, and there is no age limit to which you have to repay your loan.
Even if you have taken a fixed mortgage, you will have to go back to Reversion rates after a point in time. That is why proper knowledge about the same becomes the need of the hour.