You’ve just gotten your dream job as an analyst in one of the world’s bustling financial centres, ready to take the investment banking industry by storm. Now what? If you’re looking to put down roots and set the foundation for long term stability, you may be considering purchasing your first house.
IB Insider compares the details on first time mortgages across Paris, Shanghai, Dublin, and Dubai.
This is Part 2 of a series on mortgages across financial centres. For a quick refresher on terms such as the Loan to Value (LTV) or the Debt Servicing Ratio (DSR), visit Part 1 here.
The typical French mortgage allows you to take out a mortgage with an LTV ratio between 70 to 80 per cent. However, some mortgage brokers will limit non-EU nationals to an LTV ratio of only 50 per cent, so it is important to shop around for yourself.
The French mortgage market features a range of government subsidised mortgages for first-time buyers; most notably, the PTZ+ (Prêt à Taux Zéro) is an interest-free loan for first-time buyers and covers up to 40 per cent of your property’s value!
It is common practice amongst French residents to purchase a property using subsidised mortgages on a complementary basis to that of the principal loan. Just note that your DSR legally cannot exceed 33 per cent of your net household income.
The French mortgage market is mainly made up of fixed rate repayment mortgages, with floating-rate loans only making up 6 per cent of new loans in France. As of August 2020, the average interest rate of mortgage loans was 1.31 per cent, and interest rates on French Mortgages look to remain at historically low levels going into 2021.
You should also note that there may be extra costs of getting a French mortgage – lenders typically charge a set-up fee, and other associated administrative fees tend to add up.
Firstly, you should note that like Singapore, there is no private ownership of land in China. A land lease of up to 70 years is usually granted for residential purposes, and on the expiry of the leasehold, the ownership of the land will revert to the state and you will not retain any property rights.
Most banks offer an LTV ratio between 60 to 70 per cent, although whatever LTV ratio you decide to go for, your monthly after-tax salary must be double your monthly loan repayment.
Non-mainland Chinese citizens also have the option of taking out a mortgage loan in a foreign currency, typically USD or HKD, at international banks. The attractiveness of doing so lies in the fact that some foreign currency loans have lower interest rates than loans in RMB, depending on the bank.
Foreign passport holders can convert any amount of their after-tax salaries into a foreign currency, making this a feasible option.
Mortgage loan interest rates across China are set by the National Interbank Funding Center, a branch of China’s central bank. In Shanghai, the interest rate of a mortgage in RMB for first-time mortgage applicants is 4.65 per cent, with a maximum loan term of 30 years.
Do take note of additional fees that can add up, ranging from the deed tax (3-5 per cent depending on the property location) to other transfer fees and stamp taxes.
Under the rules of the Central Bank of Ireland, borrowers can only borrow 3.5 times their (combined) yearly income, while first-time buyers have an LTV limit of 90 per cent.
There are some government schemes that can help you along; for example, the Help to Buy (HTB) incentive helps first-time buyers of newly built homes to buy a new house or apartment costing €500,000 or less.
This incentive scheme gives a refund of income tax and Deposit Interest Retention Tax (DIRT) paid in Ireland over the four tax years prior to making an application.
You should also note the additional fees to be paid on top of the deposit. For an example of what to expect, this is a breakdown of the sample costs for a house purchase of €200,000 (USD 241,000, or £177,000).
The average interest rate on a new mortgage in Ireland was 2.79 per cent in November 2020. Although low for Ireland by historical standards, and a drop from 2.9 per cent the year before, this compares to an average rate of 1.31 per cent across the Eurozone.
Since a change in the local law in 2002, foreigners can legally buy property in Dubai and apply for a mortgage, resident or not. However, for these expat residents and foreigners, Dubai has set LTV limits at 75 per cent for properties valued under AED 5 million (USD 1.36 million, £996,000, or €1.12 million), and 65 per cent for properties valued over AED 5 million.
DSR limits are also capped at 50 per cent of your monthly income, and the full amount (principal + interest) you must repay cannot exceed the total amount you expect to earn in seven years.
In Dubai, all purchases must be registered with the Dubai Land Department within 60 days of the transaction, if not the purchase will be void. Remember to check for additional fees to be paid, such as the myriad of government, agent, service, and mortgage fees.
Another thing to note is that life insurance is mandatory when taking out a mortgage in the UAE. Banks typically have their own in-house life insurance policies and will charge premiums along your monthly payments, although you may want to shop around for cheaper external options, especially if you are young and healthy.
The average interest rate for mortgages in the UAE ranged between 3.49 per cent to 3.75 per cent in 2020. Mortgage rates are updated regularly based on the Emirates Interbank Offered Rate (EIBOR), and since the UAE Dirham is pegged to the US Dollar, local rates in Dubai will change in accordance with any changes the US Federal Reserve makes to its interest rates.
As US rates are expected to remain low for the foreseeable future, UAE rates will also follow accordingly into 2021.
Along with the turn of the year has come a fresh start and new opportunities – why not let 2021 be the year in which you buy your first home?
With interest rates looking to stay low for a while, this could be an exciting time for an investment into your own future. As always, do your research on the market you intend to buy in, and always shop around to get the best loan possible.