Feb 23, 2023
To obtain a mortgage for a property in the UAE, you must meet specific qualifying criteria and conditions, such as having a good credit history, a minimum monthly income of AED 15,000, and a maximum loan period of 25 years with a maximum LTV of 50-80%. Additionally, banks consider the debt-to-burden ratio (DBR), internationally called debt-to-income ratio (DTI), a crucial factor when approving your home loan.
The debt-to-burden ratio assesses the proportion of your monthly income that goes towards paying your expenses (including loans and credit card installments). Banks use this measure to determine your loan and credit card eligibility based on your current obligations and ability to repay them. While each bank has its requirements for loan approval, certain factors, such as credit score and debt-to-income ratio, are commonly used by all banks in evaluating eligibility.
The UAE Central Bank mandates that to be eligible for a mortgage, your Debt-to-Burden Ratio (DBR) must not surpass 50%, indicating that debt payments cannot consume over 50% of your income. A debt-to-income ratio between 20-35% is generally considered favourable for a home loan, while a ratio exceeding 35% is viewed as risky by most home loan lenders.
The DBR is determined as the ratio of the total debt owed by the applicant to the total assets owned by the applicant. In other terms, it is the ratio of your loans to your average monthly income.
Debt-to-burden= Total debt/total income
If your Debt-to-Burden Ratio is below 50%, you may qualify for additional financing, although final approval is always at the discretion of the bank. The lower the score, the greater your chances of being approved for a loan or credit card.
The calculation of your Debt-to-Burden Ratio can be done quickly by taking the ratio of your monthly expenses to your monthly income.
For instance, if a person earns a monthly salary of AED 15000 and has some monthly liabilities to be attended to, we can determine his Debt-to-Burden by performing the calculation.
Monthly Rent = AED 5000
Car Loan = AED 3000
Personal loan Installment = AED 1800
Debt-to-burden = Total debt/total income
Total Debts = 5000 + 3000 + 1800 = 9800
Monthly income = 20000
Debt-to-burden = 9800/20000 = 49%
This person is qualified for a new loan because his DBR is 49%, which is less than the 50% restriction. However, we can see that it is near the maximum limit. This is sufficient for the time being. However, if he obtains a new loan, this will undoubtedly surpass 50%, and he will be ineligible for another loan unless part of the load is reduced.
To apply for a personal loan in the United Arab Emirates, applicants are now required to provide a comprehensive set of supporting documents including salary certificates, bank statements, and any additional proof requested by the bank.
The purpose of these documents is for the bank to evaluate the applicant's ability to repay the loan by determining their debt-to-burden ratio. If the ratio is less than or equal to 50%, the loan is approved; otherwise, the loan is declined. Banks are becoming increasingly strict in their requirement for these documents to minimize the risk of loan default.
In the UAE, until a decade ago, there was no requirement to maintain a specific Debt-to-Burden Ratio for loan eligibility. Banks would grant loans to applicants with DBR scores around 65%. This 65% threshold was considered a lenient limit, and many candidates could easily maintain a DBR below 65% and be eligible for loans. However, if an applicant's DBR exceeded 65%, they were not eligible for any type of loan.
In the past, banks relied solely on bank statements as supporting documents when making loans. This often resulted in clients defaulting on their loans and banks losing money. Additionally, when consumers took out loans from multiple banks simultaneously, their Debt-to-Burden Ratio increased as the monthly interest on their debts frequently exceeded their income. In light of these considerations, most banks have now reduced the DBR to 50% AND have started implementing stricter standards and taking into account the applicant's debt-to-burden ratio.
We recommend that you do the following to enhance your debt-burden ratio:
Final words
The primary objective of a bank is to secure its assets, which mainly consist of loans. To safeguard these assets, as per the regulations of the UAE Central Bank, banks aim to restrict their loan exposure to a single individual. The debt-to-burden ratio (DBR) provides banks with a precise evaluation of a person's ability to repay the loan or the equated monthly installments (EMIs).
To learn more, reach out to our financial experts and discover the most suitable credit cards and loans for your needs using our amazing calculators.
Having a good credit score is essential for obtaining financial services in the UAE. It is a three-digit value assigned to individuals based on their financial activities, such as debt repayment schedule, number of active loans, and on-time or delayed bill payments. A good credit score can help you get loans and credit cards at reasonable interest rates and with a higher credit limit.
Mar 27, 2023To mark International Women's Day, here are five financial empowerment tips for women, as well as some credit card offers available in the UAE that can help them reach their financial goals.
Mar 9, 2023Are you tired of spending money without getting anything in return? With the right credit card, you can start earning cashback on all of your purchases. Cashback credit cards are all the rage in UAE and have become a budgeting essential for UAE customers. These credit cards not only offer you money back on every purchase, but they also provide additional benefits such as loyalty points, discounts, coupons, etc.
Feb 28, 2023The debt-to-burden ratio assesses the proportion of your monthly income that goes towards paying your expenses (including loans and credit card installments). Banks use this measure to determine your loan and credit card eligibility based on your current obligations and ability to repay them.
Feb 23, 2023There's no better place to celebrate Valentine's Day than in Dubai, where you can express your love in some of the most romantic and unique ways.
Feb 13, 2023UAE is a bustling country that never sleeps, and having a car can be a game-changer when it comes to getting around. With the high cost of living in UAE, not everyone can afford to purchase a car outright, and this is where car loans come in handy. Car loans are a popular option in UAE as they provide an easy and convenient way to finance your dream car. In this comprehensive guide, we'll take a closer look at car loans in the UAE, including the types, processes, and tips for choosing the right one for you.
May 24, 2023A personal loan in the UAE is a type of unsecured loan that can be obtained without any collateral or guarantor requirement. It is a popular financing option for individuals who need funds for various personal reasons such as weddings, higher education, international trips, starting a new business, and debt consolidation.
May 11, 2023Are you struggling to decide between renting and buying a property in the UAE? Do you find it challenging to determine which path is right for your financial future? Well, you're not alone! Many people face the same problem when it comes to making this decision. The UAE is an expensive country, and property prices can be sky-high. Moreover, the rental market is incredibly competitive, making it tough to find affordable housing. As a result, many people find themselves in a bind, unable to determine which path is best for them.
May 5, 2023Have you ever wondered why some people always seem to have enough money while others struggle to make ends meet? The answer lies in how they manage their expenses. Learning how to manage expenses is crucial, especially if you are living in the UAE, one of the most expensive countries in the world. In this blog post, we will discuss why it is important to learn how to manage expenses in the UAE and how you can do it.
Apr 28, 2023Credit cards have become an integral part of our daily lives, especially in the UAE, where cashless transactions are widely accepted. They offer various benefits, including reward points, cashback offers, discounts on shopping, and easy access to credit. However, applying for a credit card can be a daunting task, especially for first-time users. In this blog post, we will provide a complete guide to successfully applying for a credit card and receiving approval in the UAE.
Mar 30, 2023Having a good credit score is essential for obtaining financial services in the UAE. It is a three-digit value assigned to individuals based on their financial activities, such as debt repayment schedule, number of active loans, and on-time or delayed bill payments. A good credit score can help you get loans and credit cards at reasonable interest rates and with a higher credit limit.
Mar 27, 2023To mark International Women's Day, here are five financial empowerment tips for women, as well as some credit card offers available in the UAE that can help them reach their financial goals.
Mar 9, 2023Are you tired of spending money without getting anything in return? With the right credit card, you can start earning cashback on all of your purchases. Cashback credit cards are all the rage in UAE and have become a budgeting essential for UAE customers. These credit cards not only offer you money back on every purchase, but they also provide additional benefits such as loyalty points, discounts, coupons, etc.
Feb 28, 2023The debt-to-burden ratio assesses the proportion of your monthly income that goes towards paying your expenses (including loans and credit card installments). Banks use this measure to determine your loan and credit card eligibility based on your current obligations and ability to repay them.
Feb 23, 2023There's no better place to celebrate Valentine's Day than in Dubai, where you can express your love in some of the most romantic and unique ways.
Feb 13, 2023UAE is a bustling country that never sleeps, and having a car can be a game-changer when it comes to getting around. With the high cost of living in UAE, not everyone can afford to purchase a car outright, and this is where car loans come in handy. Car loans are a popular option in UAE as they provide an easy and convenient way to finance your dream car. In this comprehensive guide, we'll take a closer look at car loans in the UAE, including the types, processes, and tips for choosing the right one for you.
May 24, 2023A personal loan in the UAE is a type of unsecured loan that can be obtained without any collateral or guarantor requirement. It is a popular financing option for individuals who need funds for various personal reasons such as weddings, higher education, international trips, starting a new business, and debt consolidation.
May 11, 2023Are you struggling to decide between renting and buying a property in the UAE? Do you find it challenging to determine which path is right for your financial future? Well, you're not alone! Many people face the same problem when it comes to making this decision. The UAE is an expensive country, and property prices can be sky-high. Moreover, the rental market is incredibly competitive, making it tough to find affordable housing. As a result, many people find themselves in a bind, unable to determine which path is best for them.
May 5, 2023Have you ever wondered why some people always seem to have enough money while others struggle to make ends meet? The answer lies in how they manage their expenses. Learning how to manage expenses is crucial, especially if you are living in the UAE, one of the most expensive countries in the world. In this blog post, we will discuss why it is important to learn how to manage expenses in the UAE and how you can do it.
Apr 28, 2023Credit cards have become an integral part of our daily lives, especially in the UAE, where cashless transactions are widely accepted. They offer various benefits, including reward points, cashback offers, discounts on shopping, and easy access to credit. However, applying for a credit card can be a daunting task, especially for first-time users. In this blog post, we will provide a complete guide to successfully applying for a credit card and receiving approval in the UAE.
Mar 30, 2023