The Debt Panel: 'My husband lost his job, now we fear losing our Dubai villa too'
The British couple's home is in negative equity and they want advice on how to handle the mortgage
I am a British expatriate and have called Dubai my home for 10 years. My husband was recently made redundant from his Dh120,000 a month job in the financial sector and we are concerned about the mortgage on our four-bedroom villa. We bought the house in 2014 for Dh3.4 million on a 25-year mortgage and it is currently worth Dh2.4m. We owe about Dh2.6m, as we put down Dh800,000 and have made repayments since then.
We are considering a role for my husband outside the country while I stay here with our children as our eldest child is at a crucial point in her secondary education.
If he works outside the UAE but continues to have his salary paid in to our bank account here, do we have to change our mortgage status? If that happened, would the bank revalue the house in the current market? It has lost considerable value, as based upon loan-to-value we would be required to find a considerable amount to plug the shortfall on a new mortgage product.
My husband will be paid for the next six months and then needs a new role either here in the UAE or regionally. Our mortgage is on a fixed-rate of 4.75 per cent with an international bank based in Dubai that expires in September and we pay Dh15,000 a month. If we rented the property out, we would earn about Dh150,000 a year at a push – so, factoring in mortgage payments and service fees, there would be an annual shortfall of about Dh42,000.
Our biggest expenses are the Dh250,000 school fees for our three children and we currently have monthly living costs of about Dh40,000. Our only other debt is a Dh100,000 car loan on which we pay Dh1,600 a month. We have enough in savings to survive for three to four months in the UAE without a job; it would last us about six months in the UK.
Our ideal scenario is to keep living in the house and for my husband to get another job in the UAE or for him to secure another role in the region and for us to rent the property out. I will also look for another job but we are both very concerned about the mortgage.
Can our mortgage remain the same as long as we continue repayments regardless of where my husband has a job? Equally if we rented out our property, would we have to change our mortgage? HR, Dubai
Debt panellist 1: Chris Schutrups, managing director of Mortgage Finder
Should your husband secure a job outside the UAE but continue to have his salary paid into the bank account here, you would not necessarily need to change the status of your mortgage. However, this depends on the terms of the home loan.
It is possible for your mortgage repayments to remain the same regardless of where your husband’s job is located and whether your property is rented.
Chris Schutrups, Mortgage Finder
In the event you do need to change your mortgage, if you are intending to stay with the same bank then it is highly unlikely they will carry out a new valuation. They will be more concerned that you continue to meet the monthly repayments without defaulting
It is possible for your mortgage repayments to remain the same regardless of where your husband’s job is located and whether your property is rented. However, this is in general and without knowing the specific terms of your mortgage.
The first step is to check your mortgage offer letter and terms. These will outline exactly what the bank requires you to inform them of. The clauses related to a mortgage vary from one bank to another; some have very few requirements whereas others go as far as requesting updates if you simply change employer.
When checking the offer letter and mortgage terms, confirm whether your husband agreed to a salary transfer when taking the mortgage. If he did, then the bank will automatically be informed by his employer when his job comes to an end. In this case, it might be worth contacting the bank ahead of this.
The majority of banks in the UAE are concerned with upkeep of the mortgage repayments, irrespective of whether this is through rent or salary. Based on this, I would not be too quick in updating the bank on your situation until you are clear on their requirements.
Check through the documents mentioned above, find the clauses included in your mortgage and how these apply to you. Once your situation starts to become clearer, if there is any possibility that you might default on repayments then contact the bank to have an honest and open conversation.
Debt panellist 2: Philip King, head of retail banking at Abu Dhabi Islamic Bank
Unforeseen circumstances have the ability to erode even the most solid financial position. While it is reassuring you have built strong provisions to protect your family from such events, as you recognise, living off your emergency buffer is only a short-term solution. The real root of the matter is you or your husband’s ability to secure employment that can sustain your family expenses, as well as allowing you to repay your home financing.
First approach the mortgage lender and provide an open and honest summary of your situation. Disclose that your husband is looking for a new job in the region and that you are committed to fulfilling your repayment obligations. If, and when, he manages to find employment, send full details of this to the bank, including an offer letter or contract.
At the initial meeting, you should negotiate with the bank about the current terms of the home financing to see whether it would be possible to defer repayments, extend the tenure of the financing, or adjust the repayment rate through another mechanism. Banks are likely to give a workable solution for a couple of reasons: firstly, defaults have considerable impact on their financial books so they would be inclined to negotiate terms that would allow you to settle the borrowing. Secondly, home financing is considered a secured loan backed by the property collateral. This means the bank has the ability to provide you with a feasible repayment structure.
It is also important to establish sound fiscal measures to help put you on a more sustainable financial footing. Make a conscious effort to curb your expenses by cutting back on discretionary spending or sell some of your assets to raise additional funds.
Debt panellist 3: Ambareen Musa, founder and chief executive of Souqalmal.com
In a real estate downturn, many homeowners can find themselves in negative equity, where the market value is lower than the original mortgage principal you secured on it.
When you're employed and able to keep up with mortgage payments, the choice of holding on to a house in negative equity is a very personal one. Things get tricky, however, when you're faced with unemployment or other forms of financial distress that directly affect your ability to keep up with repayments.
Banks in the UAE don't offer structured options designed to deal with underwater mortgages, unlike the US where borrowers can apply for principal reduction or short sale authorisations from the bank.
Given the negative equity, applying for mortgage refinance won't work for you. Even if you and your husband are able to find new jobs on the same payscale as before, you'll still have to pay upfront for the shortfall in principal due to a lower valuation on your home. The best option is to negotiate with your current lender to lower the interest rate and offer you more favourable terms, once you and your husband have the new jobs and are in a reasonable bargaining position. With your mortgage interest rate arrangement shifting over from a fixed to a variable rate soon, you may actually save on interest payments.
Renting the house and moving to a cheaper accommodation can also help you save on monthly expenses, and get closer to paying off your mortgage sooner. Though you will have to make up for the difference between the rent and mortgage repayments, you will still save more than you would living in the house yourself.
Remember, the loss in value of your home is currently an unrealised loss, and only actually selling it at a reduced market value will make that loss real.
The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to firstname.lastname@example.org
Updated: July 9, 2019 10:13 AM