How Much Can You Really Afford? Inside the Affordability Calculator

Published on July 28, 2024

Determining how much you can afford for a property in the UAE is more complex than simply looking at your savings. Banks follow strict guidelines set by the UAE Central Bank to ensure buyers are not over-leveraged. Our Affordability Calculator is designed to replicate this process, giving you a realistic budget.

This guide breaks down the core concepts and calculations our tool uses to determine your maximum affordable property price.

1. The Core Principle: Debt Service Ratio (DSR)

The entire affordability calculation hinges on the Debt Service Ratio (DSR). This is the percentage of your gross monthly income that goes towards servicing all your debts, including your new potential mortgage.

The UAE Central Bank mandates that the DSR must not exceed 50%.

Our calculator first determines the maximum portion of your income available for a new mortgage payment:

Max Available for Mortgage = (Monthly Salary * 0.50) - Existing Monthly Debts

If this value is zero or negative, it's impossible to qualify for a new loan, as your existing debts already consume 50% or more of your income.

2. The Bank's Stress Test

A bank won't calculate your loan based on today's attractive interest rates. They are required to apply a "stress test" to see if you could still afford the payments if interest rates were to rise significantly.

The stress test rate is typically your actual mortgage rate plus a buffer of 2% to 4%. Our calculator uses a default of +3.0%, a common industry standard.

Stress Rate = (EIBOR + Bank Margin) + Stress Test Adder

Using this higher stress rate and the "Max Available for Mortgage" payment calculated earlier, the tool works backwards to find the maximum loan amount the bank would be willing to offer you. This is the Derived Maximum Loan from Bank.

3. Combining Your Cash and the Loan

Now we have two key figures: your Available Cash and the Derived Maximum Loan. However, finding the affordable property price isn't as simple as adding them together. Upfront costs and minimum down payment rules must be factored in.

Our calculator uses an iterative binary search algorithm to find the highest possible property price where:

• The required loan does not exceed the bank's maximum derived loan.
• The total cash required (down payment + all upfront fees) does not exceed your available cash.

What are the upfront costs considered?

These are significant and are deducted from your available cash pool. They include:

• Down Payment: The portion of the property price you pay in cash.
• DLD Fee: 4% of the property price for the Dubai Land Department.
• Mortgage Registration: 0.25% of the loan amount.
• Trustee & Title Deed Fees: Fixed and tiered fees.
• Valuation & Agency Fees: Fees for property valuation and your real estate agent (including 5% VAT).
• Mortgage Processing Fee: A percentage of the loan amount, charged by the bank (including 5% VAT).

4. The Final Calculation and Results

Once the algorithm finds the optimal property price, it presents a full breakdown:

• Max Affordable Property Price: The final result of the calculation.
• Actual Loan & Down Payment: The specific loan and down payment amounts for that property price. This might differ from the bank's max loan if you are limited by your available cash.
• Estimated Monthly Payment: Calculated using the actual mortgage rate (not the stress rate), providing a realistic view of your day-to-day costs.
• Upfront Costs Breakdown: A detailed list of all fees so you can see exactly where your cash is going.
• Remaining Cash: Any cash left over after all costs are paid, giving you a buffer.

By simulating the bank's own logic, the Affordability Calculator provides a robust and trustworthy estimate, empowering you to search for properties with a clear and realistic budget in mind.