x Abu Dhabi, UAEThursday 27 July 2017

Can I rely on rental income to pay for my Dubai mortgage?

A property investor finds out if he can secure a mortgage on rental income alone.

Apartments on Palm Jumeirah in Dubai. Pawan Singh / The National
Apartments on Palm Jumeirah in Dubai. Pawan Singh / The National

In the next two years I will have saved Dh180,000 for a deposit on a studio apartment in Jumeirah Lakes Towers. I would like to buy it for up to Dh650,000, including the deposit. My intention is to live in the flat myself, but I may rent it out. I am not working, but I own two mortgage-free one-bedroom flats in JLT from which I receive an income. Am I still eligible for a mortgage? WP, Dubai

The expert advice

Warren Philiskirk is the associate director of Mortgage International Business Dubai

Currently there are no products that will support lending by individuals who solely derive their income from rents. The only answer to this would be for the applicant to supply evidence of other income streams from a business to meet a bank’s credit policy or secure salaried employment.

In other, more mature mortgage markets there are products that are based purely upon the existing rental stream from the property being purchased, or in some circumstances the forecast rental. This rental would then have to cover the monthly mortgage payments by a minimum 125 to 140 per cent to ensure more than enough coverage to the lender.

However, even in very mature markets such as the UK this is becoming far more difficult to find, with most lenders requiring ancillary income other than rent. With the property market in the UAE already performing well, I do not envisage banks releasing such products for residential mortgages in the near future.

The reader’s advice

Gabriel Gonzales, Dubai

The UAE’s banking industry is still maturing, and at this stage I think it would be a little risky for banks to lend to buyers who lived on their rental income alone. But that doesn’t mean it might not happen in the future.

Mashreq, for example, now offers equity-release mortgages where you can take advantage of the additional value you have in a property that is not mortageged. It allows you to release funds from one property to help you buy another. While that will not solve your dilemma either as you will still not have an income – separate to property income – to calm a bank’s fears about lending to you, it could be something for you to consider when buying that third property.

My advice to you would be to take up a job, any job, maybe even a part-time job, to ensure you have an income. Then release some equity from one of your existing properties using a home-equity mortgage to help you bump up your deposit for that third property. It’s risky, but if property investment is your financial strategy it means you will be able to invest into an even higher-value home than you initially planned.

According to Mashreq’s advertising, it’s a simple process that will let you get your hands on the cash quickly so you can get that third investment going much earlier than planned. With property prices going the way they have been over the past 18 months, the sooner you invest the better.

Next month’s question

I switched my salary to a new bank about a year ago. However, I kept my account at the old bank open as there were cheques going out of the account to pay off a car loan. My wife deposits a fixed sum into the account through standing order to cover the car-loan cheques. However, I accidentally discovered that the last three cheques bounced because my wife’s standing order had stopped without her realising. When I contacted the bank that issued the loan they did not seem very worried about the bounced cheques and stressed that the outstanding debt would not affect my credit rating or prevent me from travelling. They asked me to pay the outstanding balance whenever I had time. The understanding in the UAE has always been that bouncing a cheque is a serious issue, so has the law relaxed? PS, Dubai

Every three weeks The National features a reader’s personal finance problem. If you have an issue or would like to suggest a solution for another’s reader’s concern, write to pf@thenational.ae

Follow us on Twitter @Ind_Insights