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How much can I borrow? A quick guide to mortgage affordability

Are you looking to secure a mortgage? One of the first steps in this process is an affordability assessment. Because of the risk involved, lenders will want to make sure you have the means of repaying the loan.

Are you looking to secure a mortgage? One of the first steps in this process is an affordability assessment. Because of the risk involved, lenders will want to make sure you have the means of repaying the loan they give you over the mortgage term.

But that’s not the only important thing about affordability assessments. They also determine how much you will be able to borrow, which in turn influences the type of property you can afford to buy.

Here’s our quick and easy-to-read guide on everything you need to know about getting a mortgage affordability assessment.

How do affordability assessments work?

The two main criteria a potential lender will look at to determine affordability are your monthly income and monthly debt.

Your main source of income is likely your full-time job, so they will want to see payslips as proof of this. Some lenders may also consider extra income to determine affordability, such as a part-time job, bonuses, or commission, although this depends on the lender.

The amount you can borrow is capped at seven times your annual salary for expats, and eight times your annual salary for UAE nationals.

Second, the bank will want to calculate your Debt-Burden-Ratio (DBR). Your DBR is your monthly debts as a ratio of your income. Law in the UAE states that your monthly debt (including credit cards and loans) cannot exceed 50% of your monthly income. If you do, your mortgage application will be rejected.

Taking these factors into account, your bank will then decide if you are a trustworthy customer who will be able to pay the loan back over the mortgage term (which can be a maximum of 25 years).

One thing to keep in mind...your lender will want to “stress test” your finances. They do this by artificially inflating the interest rate by 1% to see if the buyer would still be able to afford the mortgage repayments. It’s a simple way of checking affordability if EIBOR rates were to increase.

What if I’m self-employed?

Lenders see self-employed people as being at higher risk. Monthly income can fluctuate or can change dramatically if, for example, you lose a big client overnight. Because of this, lenders typically require 2 years of audited financial statements amongst other things. The aim is simply to prove that you are a reliable candidate, with a steady income, who will be able to meet your monthly payments.

What’s the legally allowed loan limit?

In March 2020, in response to the Covid-19 pandemic and its impact on the economy, the Central Bank of the UAE issued a Targeted Economic Support Scheme (TESS) whereby UAE banks can increase the loan-to-value (LTV) ratio for first-time buyers by 5%. This includes both expats and UAE nationals.

This means that expat first-time buyers can now borrow up to 80% of their property value (up from 75%) on properties less than AED 5 million. UAE nationals may borrow up to 85% of their property value (up from 80%), also on properties less than AED 5 million. For properties over AED 5 million, this decreases to 65% for expats and 70% for UAE nationals.

The UAE central bank confirmed these changes have been extended until mid-2022.

I failed an affordability assessment. Now what?

Okay, so your lender won’t give you the amount you need to buy the property you want. If the lower amount they offer won’t cut it, there are a few things you can do to make sure you’re in the best position to get the loan you need next time around:

  • Pay off your debts. Credit card debt and personal loans can have a big impact on affordability, so try to clear these as much as possible before applying for a mortgage. Also try to keep well within your credit limit, as this can affect your credit score.

  • Take control of your spending. Tally up your expenses and start canceling the things you don’t use. Or see if you can reduce the costs of your regular expenses, such as car insurance or utilities. This will not only save you money but show lenders that you’re financially responsible - a big plus when it comes to securing a mortgage loan.

  • Budget carefully. Creating a weekly or monthly budget helps you manage your money more effectively and demonstrate that you can live within your means.

We’re here to help you

Huspy is a free online mortgage broker helping you go from pre-approval to house keys in less than one month. And we don’t charge any fees! Want to see how much you can borrow? We’ll be able to give you a personalised estimate in a matter of minutes. Check out our website to get started.

Not sure if you will pass an affordability check? Want to check if you are eligible to get a mortgage loan? Our friendly team of mortgage experts can help :)

Written by Huspy Team

Published on 3 May 2023

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