Frequently Asked Questions
The first-time homebuyer can feel lost when looking at the many different terms, conditions, rules, and restrictions imposed by specialized banks, commercial banks, and the Central Bank on the issuance of subsidized and non-subsidized housing loans.
Knowing what to except when taking out a loan to purchase a home is crucial.
Who is eligible for a housing loan? Is there such a thing as a zero percent interest rate? Can a loan be paid off early? What subsidized loan options are available?
A. For Loans that are subsidized by the Central Bank (BDL) or Public Corporation for Housing (PCH), the apartment purchased cannot be let out before the end of the loan repayment period. The rationale behind this is that for both BDL and PCH housing loans, the property should constitute a primary residence, based on the fact that the buyer benefits from reduced interest rates on the loan. For PCH subsidized loans, the buyer benefits from exemptions on registration and mortgage fees. The homebuyer has to buy a penalty amounting to two percent of the outstanding loan amount. These conditions are set to discourage speculators from posing as legitimate homebuyers and using subsidized housing loans for investment purposes. For loans that are not subsidized, i.e. when a loan is given by the bank from its own funds, selling the property before the end of the repayment period is subject to the bank’s approval and is negotiated on a case-by-case basis. However, in such cases the homebuyer still has to pay a penalty to the bank.
A. The interest rate charged by banks for housing loans is not a fixed rate by definition as it is pegged
to different indices and varies with the fluctuation of these indices. But banks usually commit to a fixed rate of interest for a maximum of three years. After that period, the interest charged varies with the index it is pegged to.
For subsidized housing loans, the formula is set by the BDL and depends on the type of housing loan issued:
- For PCH subsidized loans, the interest rate charged is generally equal to 20 percent of the yield of two year T- Bills plus 3 to 3.9 %,
- For BDL subsidized loans the interest rate charged is generally equal to 40 percent of the yield of one year T- Bills plus 2.5 to 3.3 %,
For non-subsidized housing loans, the interest rate formula is set by the bank and is usually a function of either LIBOR or Beirut Reference Rate (BRR), a composite index issued by the Association of Banks in Lebanon (ABL) each month, and differs from one bank to another.
A. In reality a bank can charge zero percent interest rate on a housing loan for up 10 the first year of disbursement, but offering a housing loan with zero percent interest rate for the whole duration of the loan is impossible. For banks that offer a first-year zero percent, interest rate there is an increased risk of abuse. Customers could get the loan and decide to pay it off in full in tile second year which would result in losses to the bank. For this type of housing loan offer, the loan product is structured in such a way, that the penalty the customer will have to pay should he decide to payoff the loan before full maturity will be calculated so as to compensate the bank for the interest amount for the first year.
Some banks offer options whereby customers may put up a cash deposit up from which will be equal to the interest that should be paid on a certain number of years.
A. For bank loans, the income is defined as the household income after other loan installments are deducted based on the BDL’s credit information department (‘Centrale des Risques’). Other household fixed expenses are generally not deducted from the income when calculating the loan ceiling and the monthly installment’s’ amount.
A. Usually when one tries to settle parts of the loan early (before the loan’s full maturity), a penalty is imposed on the debtor varying from one to two percent of the total outstanding loan amount. If the borrower calculates that, the amount of interest he would save in monthly installments is greater than the penalty he will have to pay, then settling the loan or parts of it early could be beneficial.
A .Yes, it is possible. There are two options:
A PCH subsidized loan con be issued in The name of offspring of working age who generate income provided their salaries meet the requirements set by The PCH, as the beneficiary of the loan is the debtor. This is done to comply with the PCH requirement that a loan beneficiary has to be able to settle at least 75 percent of the loan amount before he reaches his retirement age of 64.
Non subsidized bank loans, where the parent Can act as a ‘personal guarantor’ for the loan while the son or daughter is the real owner of the loan, assuming that the parent is financially eligible.
A. Banks consider the income of the household: Husband, wife, and possibly children (if they want to be included). Concerning possible family problems, as long as the installments are paid on time the divorce on its own does not concern the bank. However, when one of the partners does not want to remain liable for the loan and wants to sell his/her share of the property (1, 200 shares or half) to the other then the spouse buying those shares becomes solely responsible for making the monthly payments. In this case, the bank has to reevaluate the financial situation to assess whether that person is capable of shouldering responsibility for the loan alone. The contract is transferred to the name of the spouse if that person is found financially fit. Otherwise, the property could be offered for sale in public auction.
A. The PCH subsidized loans benefit from the following:
Lower interest rates. Current average interest rates are· 4 67 to 5.07 percent through the PCH versus 5.14 to 5.44 percent through a BDL subsidized banking loan.
Exemption from paying the five percent property registration fee and mortgage fees.
A. The conditions are:
Nationality: The applicant must have held the Lebanese citizenship for at least ten years.
Age: The applicant must be at least 21 years old and should be able to pay off at least 75 percent of the total loan amount before he reaches retirement age (64 years old).
Income: The income must not exceed ten times the minimum wage. Today the minimum wage is LL675,000 so the total monthly household income must not exceed LL6.75 million. The household income is considered to be the income of the wife and husband combined. It is possible to include the salaries of children of working age. However, this would deny them the possibility of applying for a PCH housing loan when buying a home themselves. Eligible persons may benefit only once from its subsidized loans.
Size of Unit: The maximum surface area of a residential unit excluding common areas, terraces, and balconies is determined by the PCH based on household income as per the following table:
|Monthly household income||Maximum surface area allowed|
|Less than LL3 million||Up to 150 m2|
|More than LL3 million||Up to 210 m2|
The house purchased by the applicant must not be the property of a direct relative (parent or sibling). The loan applicant, the loan applicant spouse, and children (if included in the household income estimation) should not own any other residential unit with, kilometer radius of their place of employment The residential unit to be purchased must constitute the applicant’s primary residence and may not be let out, mortgaged, or used as collateral for any other financial commitments.
The maximum loan amount is S180,000.
A. Loans through the Banque de L’Habitat have the following advantages:
- A higher loan ceiling up to LL600 million ($400,000)
- No maximum ceiling on household income.
- No restriction on the square area of the property to be purchased
- An applicant can benefit from the bank’s housing loan twice in a lifetime provided the old loan has been settled.
- Households with a monthly income under LL5 million exempt from registration fees.
A. Nationality: The applicant should hold the Lebanese citizenship, one must have held it for at least the past ten years.
Income: The applicant must have a minimum salary of LL 2 million.
Age: The applicant should repay the entire loan amount before reaching retirement age (64 years old).
A. See table: Administrative Procedures for Buying and registering Property.
A. The rental valuation is not an accurate indication of what the registration fees will be after purchasing the property. Such valuation is provided by the Department of Built Properties at the Ministry of Finance (MoF) based on predetermined charts that fix rental value per area and region. Up until September 14, 2011, rental valuations were labeled’ not valid for registering estimation. ‘The head of the Cadastral Register had the right to reassess the valuation amount of the sale to be too low. However, a new decision by MoF stipulates the following:
- The rental valuation issued the Ministry of Finance should be labeled as ‘valid for registration evaluation.’
- The registration fee should be based on the sale amount, or on the value of the property calculated by multiplying its rental value by 12.5 whichever is higher
However, this decision is not fully implemented in practice yet. For details on fee calculation, see table: Administrative Procedures for Buying and Registering Property).
A. Estimating annual taxes due on property starts with an evaluation of the rental value of the property, i.e. how much the property can generate in rent for its owner if it was leased. This valuation should be done by the concerned directorate at the MoF based on principles defined by law:
If the property has been let out previously, the exact rent agreed upon between the tenant and the landlord is adopted as a basis for the calculation of the tax.
In the absence of verifiable rent contracts or if the property has not been let out before, the rental valuation is made based on net revenues generated by surrounding properties in similar conditions and of similar specifications.
- If the comparison with similar properties is not possible, then the rental valuation is mode based on the assumption that the property should generate no less than five percent of its value as annual rent for its owner.
The net annual rental revenue is calculated after deducting expenses paid by the landlord on behalf of the tenant, maintenance expenses, and concierge and security fees.
The tax on built property is calculated as a percentage of the net rental value as follows:
|Net annual rental value (in LL million)||Percentage of rental value Paid as tax|
|20 – 40||6%|
|40 – 60||8%|
|60 – 100||11%|
A. One can postpone registering a newly purchased property but as long as the property is not registered at the MoF, in the eyes of the law, the old landlord is the legal owner and can still sell it to a third party.
However, one could perform a protective procedure known as ‘tasjil ihttiyati’ or provisional registration, by which a mark is placed on the property deed at the Cadastral Register upon payment of a stamp fee that is less than the full registration fee. This stamp fee will be deducted from the full registration fee when the official registration procedure is completed. But this temporary registration procedure is completed lasts only ten days (tolerated up to one month) and should be renewed. Another drawback of postponing registration is that the registration fee increases year after year, as it is calculated based on the value of the property on the date of the registration, and not the date of the initial sale contract.
A. Informations about a developer can be found through two main sources:
The Urban Planning Department which holds copies of the construction permit and the blueprint of the building.
The order of the Engineers has information regarding materials used in construction and the building’s specifications.
These two sources give the buyer an idea of the quality of the developer’s work. But information about the developer in the market would be more useful. Also useful would be the confidential information which a customer could get through his bank from the BDL’s credit information department (Centrale des Risques), and from companies that specialize providing consumer and business credit informations.
A. Buying off-plan offers buyers some flexibility in deciding on the layout of their apartment and they sometime benefit from discounts offered by the developer. The risk of buying off-plan is that the developer could come up with an altered (i.e undesirable) architectural design, or run out of financing and stop the project midstream, or run away with the money. As long as the property is not legally, parceled (moufrazah) the buyer cannot put a hold (ishara) on his property to safeguard his right.
A. The property owner can use the Common sections of a building according to their needs provided this do not impede other owners from using these sections.
The property owner may not make any changes to common area and at all even In the case of renovation. In the non-Common area of an apartment a property Owner is not allowed to make any changes that would affect the homogeneity of the building such as modifications to the building’s entrance, windows, balconies, or terraces unless at least 75 percent of the building committee members agree on these changes. However, few years ago the Ministry of Interior and Municipalities issued a decision amending the above stipulation to make allowance for the “tough economic conditions of Lebanese families.” The ministry allowed home owners to expand the living space in the homes at minimum cost. The decision allowed them to close terraces and balconies with glass and/or aluminum partitions.
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