The demand for ‘as much finance as one can possibly get away with’, once again smacks of the speculative nature of the property market here in Dubai. The Banks/Lenders are competing to offer the most attractive Loan to Value (LTV) for their prospective customers, but at the same time keeping a weather eye on the more realistic valuations that are coming in from the surveyors.

Remember, Banks are in the business of lending money and do not want to repossess property for non-payment, particularly if Dubai property were ever to get into a negative equity situation (perish the thought!). Moreover, the legal structure for Banks/Lenders in the United Arab Emirates is very much in the favour of the Borrower, as the process of repossession is quite complicated. This could be one of the reasons why there are not more Lenders involved and certainly this offers some form of comfort if you are having difficulty finding the cash for your next phased payment.

Developers who do not have Bank/Lender arrangements in place are frantically scurrying around looking to secure terms. The days of cash-buyers are dwindling and in order to keep stock flowing they need to offer a finance option. Many have taken on self-financing, which always commands a great headline, but you could find yourself paying off your loan within a few years. Moreover, private lending of this nature without the security of a Banking institution should be viewed with some caution and you should study your T&C’s very carefully. That said, we have witnessed one major Dubai Lender renege on its T&C’s and one step further by making its judgment retrospective.

So we have a Catch 22, whereby the Banks do not want to lend too much because the valuations are starting to soften, conflicting with the need for securing market share of the lucrative lending pot of business, with ever increasing pressure from competitors and diminishing margins. At present, it seems that all Lenders are increasing their LTV regardless in the hope that all will be alright in the bigger scheme of things further down the line. Let’s face it, Banks don’t like losing and if anyone reading this has borrowed too much, you can bet your last dime that the Bank will get all their money back.

The use of overseas Lenders is becoming more prevalent whereby Dubai property investors are leveraging assets elsewhere to raise cash. Whether this is achieved from other property, income, portfolios or similar collateral, one can generally find more favourable terms, particularly on interest rates. Take into consideration establishment fees and including brokerage costs, you can generally find excellent lending solutions overseas if you qualify for this kind of loan. There could be other valid reasons for borrowing from other assets. In particular, you may have built a considerable property portfolio in the UK which is now creating Capital Gains (CGT) and Inheritance (IHT) planning headaches for you. If you are not resident for taxes in the UK then there are no CGT issues to be worried about, but your IHT headache remains no matter how long you have lived overseas.

Many UK residents are leveraging their UK property in order to re-base their CGT level and secure a loan at favourable rates for their Dubai purchase. With some careful planning too, the IHT hurdles can be overcome and a good mortgage Broker will be able to run you through all the relevant considerations in mitigating these potentially expensive ailments. Even if you are not a UK domicile citizen, you can still be liable for Death Taxes if you own property in the UK (regardless of nationality).

Just remember, when you raise finance against assets elsewhere, in addition to securing a mortgage in Dubai to attain this magical 100 per cent deal, you need to be very aware of what you are getting yourself into. Worse case scenario could be negative equity on your Dubai purchase and also the one at home too – could you still afford the payments? What if the rental market becomes saturated and the rental income you receive is not covering the two loans. You could be in a situation where you could be risking two properties and not just the one.

Typically, developed markets tend to lend at 80 per cent LTV with special incentives predominately reserved for first time buyers. Because the market is developed, the Banks have greater levels of comfort in the historical performance of property and could offer more LTV on a case by case basis. That said, developed markets don’t forget that one can get into negative equity, so this 80 per cent ball park level of lending seems to make sense for both parties concerned, i.e. being able to afford the loan now and in the event of future anomalies.

Be aware of finance deals that sound too good to be true and ensure that you can fund the loan in the event of interest rate changes, softening rental yields and changes in lending criteria. Ask your Developer/Realtor why there is no Lender for your particular project and what is the likelihood of a Lender coming along. I was amazed by the feedback from so many realtors at the Cityscape exhibition who had no idea of financing whatsoever, even though every potential client was asking them the question. Those Developers/Realtors who did have something to say was the usual “we have a tie up with XYZ Bank”. When asked about the importance of working with all local Banks to secure the best deal for your client or exploring the possibility of financing to 100 per cent using international lending solutions, the silence was deafening! The penny is only just starting to drop with Developers/Realtors, so you will need to do your own homework when getting the right finance solutions put before you. Ask your Realtor/Developer if there is anyone that they know who can help you out with getting unbiased property finance solutions. You never know, you might be speaking to us sooner than you think.