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Property mania has certainly hit Dubai and there are numerous high quality projects available from studio apartments to lavish villas. Similarly, the United Kingdom currently enjoys a very healthy property market and there are no imminent indications of a slow-down. Why is this the case? There are a number of reasons but primarily it is due to the low interest rates we are currently enjoying and the lack of investor confidence in global stock markets. Nearly all equity-based investments over the preceding 2 years have experienced negative growth and this has naturally made investors look elsewhere. As low interest rates are no use to depositors, investors can borrow money at a low cost to either buy that dream home or to create a portfolio of rental property. It is however worth remembering that interest rates have not always been at this level and the forecast is that they may rise in 2003. Those who have been in the United Kingdom property scene for sometime will remember the high interest rates in the 70's & 80's and the falling property prices. This resulted in negative equity for many, and an inability to pay the higher mortgage rates. Many properties were repossessed by the Banks and Building Societies and the outstanding debts recovered through other means. History has been known to repeat itself, so be sure that the level of borrowing you are considering taking on is manageable even in the event of a rise in interest rates. Presently you can borrow in £ at under 4% and there are some very interesting options if you are considering buying in the United Kingdom. Always ensure that you get more than one quote and the use of a mortgage broker is invaluable. If you are looking for fixed rate, flexible-tracker, discount, capped, buy-to-let, interest only or capital repayment, ensure that you qualify that there are no lock-in periods, overhang or fees for flexibility. Each lender has over a dozen products so there is a magnitude of options - a good broker can guide you accordingly. In the United Arab Emirates, the choice of lenders is not as widespread and the options not as attractive. Typically you can lend at 6.5% in Dirhams for the various property developments that are regularly advertised in the local press. Unfortunately, banks based overseas cannot provide lending facilities on these properties so one is confined to the locally established lenders. However, a number of investors with assets overseas have taken advantage of the interest rate differential. For example, an investor with property in the United Kingdom may be able to release equity to a maximum of 80% loan to value (less any outstanding mortgage) to finance all or part of his property in Dubai. This means that his borrowed funds are financed at 4% in £ terms as opposed to 6.5% locally. Most lenders will also require some form of protection. No, not the Mafia! but the amount of cover you have in the event of your death or diagnosis of a terminal illness. In order to secure a loan for property the lender will take the property as collateral should you default on the loan i.e. if you cannot pay your mortgage they keep your house and you have to find somewhere else to live. Banks would prefer not to repossess since the value of the property may have fallen to a level below the outstanding loan amount and their business is not real estate! Moreover, if the reason you cannot pay is because you are terminally ill, you certainly do not want to be homeless as well. With critical illness affecting 1 in 4 of us at some stage in our life, lenders will require that you have sufficient protection to cover the amount of loan you have secured. A British person, who smokes, under the age of 40 can be covered for £250,000 for about £170 per month. Make sure you are properly covered if you are venturing into real estate. In summary...
Happy house hunting!
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