So you’ve sent your mortgage application off to the bank for approval...but it gets rejected. Has this happened to you? Don’t worry, you’re not alone. Lots of people get their mortgage applications rejected for a variety of reasons. That’s because a mortgage is a significant investment for a lender to make, so they want to make sure their money is going to someone they can guarantee will pay it back.
Some common and specific issues tend to hold people back when applying for a mortgage loan. The good news is that many of these can be avoided. Let’s take a look at what those are and how we can help.
Credit score
Your credit score gives lenders a summary of your financial history and health, and lets lenders know if you are a reliable and trustworthy individual who will be able to manage mortgage repayments. It’s a key factor in Dubai and the UAE when it comes to applying for a mortgage. If you have a poor financial history and low credit score, it may negatively affect your application.
You can check out this article on how to improve your credit score. But the main things to do are; responsibly manage any debts or credit card payments you have, try to keep your credit utilisation low, and don’t make too many credit applications within a short space of time.
Age and nationality
You must be at least 21 years old to apply for a mortgage in the UAE. There is also an upper age limit set by most banks: 65 years if you are a UAE expat, and 70 years if you are a UAE national or self-employed.
Where you come from is also a factor. If you come from a country that is currently being sanctioned by the US, then UAE banks are unlikely to lend to these nationals unless they have lived in the UAE for many years (usually upwards of ten years).
Employment
In the UAE, simply being employed by a company is not enough to guarantee to get your mortgage application approved. Banks prefer lending to people who work for companies that are established, stable, and have a strong future.
For example, people who work at companies that have been established two years ago or less will find it difficult to get approved for a mortgage. Also companies without a physical office presence i.e. those who hot desk or work from home will also struggle to get approved by banks because of what banks perceive as greater financial risk.
For certain Islamic lenders, only companies in industries that are Sharia-compliant will be able to get a mortgage loan. For example, those who work in nightclubs or bars will not get financed.
As a general rule, banks will consider the following points when reviewing your mortgage application:
Company size
Established history of the company
Projected stability
Company reputation (e.g. any negative media coverage)
Industry in which the company operates (banks are being stricter with some industries currently, such as aviation, because of the pandemic. However this varies on a case-by-case basis).
Affordability
Calculating your debt-to-burden ratio, or DBR, helps banks see if you can meet your monthly mortgage repayments. Banks usually do this by taking 50% of your salary and then deducting your monthly financial commitments (this is specific for loan and credit repayments). If you have nothing left, then you are likely to fail the test and get your mortgage rejected because your debt ratio is too high.
Before applying for a mortgage, it’s worth reviewing your financial situation and liabilities. Make sure you can comfortably cover your mortgage repayments as well as your regular outgoings once half of your salary has been removed. Once you can do this, you’re in the right place to consider a mortgage application.
The mortgage stress test
Regardless of whether you get a variable or fixed-term mortgage, your interest rates will likely increase over your mortgage term. To make sure you can handle these fluctuations, lenders will perform what’s called a “stress test” on your mortgage repayments. This considers what your repayments will be like if interest rates are higher than what they are today. So make sure you can comfortably afford the mortgage and will have money to spare, otherwise, you will be found out.
Misrepresentation
This one goes without saying...tell the truth! Every bank will do their due diligence and research on you, so if there are any discrepancies in your application then they’ll find out. That’s why it’s important to disclose all your circumstances honestly. If you have any problems you are concerned about disclosing then you can speak to our team for advice. We can suggest a lender that may be more understanding of your situation.
Search the best mortgage options with Huspy
Getting rejected by one bank doesn’t mean you’ll get rejected by them all. Every bank in the UAE has different criteria for lenders. The difficulty is finding the right one for you! At Huspy, we can help you find the very best mortgage deals on the market that match your specific needs.