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Types and Conditions of Mortgage in Egypt

التمويل العقاري - Mortgage

Real estate investment is the best and most secure among all investment fields, as this kind of investment is not confined to a specific category of investors and does not require special conditions or a specific financial budget to invest, also it’s considered one of the best methods to gain fixed and guaranteed income.

There is no doubt that all the unstable circumstances facing the Egyptian Economy have increased the efficiency of the real estate sector as a safe and secure haven.

Due to the current situation of Egyptian economics, many people prefer to invest in the field of real estate to ensure stable income regardless of any risks and market fluctuations.

As a result of different economic variables, especially the high rate of inflation, the Egyptian State has regulated the governing rules of Mortgage activity to ensure that such a sector plays an important role to help individuals and institutions find their financing needs.

Also, the State aims to provide the necessary financing to middle-income and low-income groups within State’s plan for financial inclusion.

Egypt has also provided different Mortgage programs to face the challenges of such activity by providing solutions suiting recent economic and financial variables and providing necessary financing for those who wish to buy and enabling them to start in this sector.

It is worth noting that granted Mortgages by financial institutions amounted to EGP 4.2 billion during the third quarter of 2022, with a growth rate of 71.5% compared to the same period in 2021.

Overview of Mortgage and its types

The mortgage is defined as the process of beneficiary financing – natural or legal persons – to invest in residential, administrative, or commercial real estate on the guarantee of the right of concession on such property.

Mortgaging it officially or by any other guarantees that might be accepted by the financier in accordance with the regulations and legal procedures, it can be happened by financing to purchase, build, restore, or improve a property.

The process of granting a Mortgage to the beneficiary is carried out through a tripartite contract between the financier, the buyer, and the seller.

In the case of financing with the three parties would be the financier or the financial institution, the buyer and the seller and in case of the construction, restoration, or improvement the three parties would be the financier, the buyer, and the contractor after the law was amended there are other models for bilateral agreements.

There are many types of Mortgages as Financing may be for purchasing, construction, restoration, or improvement of units (residential, administrative, commercial). Recently, there are many available mortgage systems:

  • Ijara financing.
  • Murabaha financing.
  • Partnership Financing.
  • Usufruct Financing.

Legislative framework and Regulatory Authority

The mortgage is regulated by Law No. (148) of 2001 and amended by Law No. (55) of 2014 with its executive regulations, as well as Law No. (10) of 2009 are the governing laws of this sector.

Financial Regulatory Authority (FRA) is the competent authority for supervising and monitoring the Mortgage market and receiving and reviewing any complaints from customers.

Mortgage requirements

In the past, in order to benefit from Mortgage, it shall require the registration of property for the benefit of the seller, and after amendments to the concerned law.

The Law authorized the financier to accept other guarantees for the Mortgage process if the property has not been registered, such as other real estate assets, a personal guarantee from a non-buyer, listed securities on the Egyptian Exchange, or deducting installments from the beneficiary’s salary or income.

The financier in such cases may require the buyer to register a lien right or formally mortgage the property in the favor of the financier.

In the event that the Mortgage is for the purpose of building, restoring, or improving a property on land allocated to the beneficiary by the state or a public legal person, the financier may accept to mortgage the buildings in his favor as a guarantee for the financing or accept the investor’s waiver of the allocation in his favor.

Buyer shall be at least 21 years old and shall prove his income with a document and provide proof of obtaining sufficient income, then he became eligible to apply for a Mortgage.

What shall be included in the Mortgage agreement

(a) Property details and price.

(b) The amount of advance payment to be paid from the property’s total price.

(C) Installment details and value, provided that it shall be determined in advance by using a fixed formula linked to one of the official indicators determined by (FRA) to calculate the change in financing cost – by increase or by decrease – until the full payment of the total price.

(d) Seller’s acceptance for assignment of his rights to installments and related guarantees to the financier under the agreed terms.

(e) The buyer’s obligation to register privilege on the price whose installments transferred to the financier, as a guarantee of their fulfillment

Mortgage amount

A mortgage cannot cover all costs of the property, as the beneficiary shall pay a percentage of the total amount in order to ensure the buyer’s seriousness and also to help in facing any risks. The financing maximum limits shall be as follows:

  1. The maximum financing shall be 90% of the property’s value in the event that the residential purpose is.
  2. The maximum financing shall be 80% of the property’s value in the event that the purpose of financing is not residential.

Term of Mortgage

There is no specific time period for repaying the financing amount, as it can be paid over a period of 20 years or more according to the repayment schedule, also payments can be paid monthly, quarterly, or on annual basis.

Also, low-income families may pay their mortgage loans over a period of 30 years according to the agreement. Installments shall be paid through a bank account or in the company.

Credit limits

The ratio of the monthly installment to be paid by the buyer to the buyer’s income shall not exceed the following percentages:

  • 35% of the monthly income for low incomes.
  • 40% of monthly income in the case of social housing projects.
  • 40% of monthly income for non-low-income people.

Acceleration repayments

The buyer may expedite the payment of the total price, all or part of it, in such case premiums shall be reduced in accordance with the Expedited payment.

Income evidence

The buyer shall submit documents proving his income to determine his financial situation and creditworthiness and to guarantee the beneficiary’s regularity in installments paying.

Checks shall be used as a means to collect the installments, not as a guarantee, and not as a means of income proof.

Promissory notes or bills of exchange can be written as guarantees as well, but they shall not consider a source to increase financing or proof of income, and they can also be deposits, investment certificates, rental receipts for other properties owned by the beneficiary, agricultural land ownership contracts, tax returns, a certificate from an accountant, or an official document from Social Insurance, Moreover, the financier may accept any other supporting proof documents.

Married couple’s incomes may be combined in one statement, and the financing amount shall be calculated on the total amount of their income with the consideration aforementioned credit limit ratios, also the Agreement may be in the name of both of them even if only one of them will be the obligated to pay the installments, moreover, in case the applicant is unemployed, he can add parents’ income or spouse.

Guarantees & Restrictions

The law stipulated the necessary guarantees regarding mortgage, which shall be a first-degree mortgage on the property in favor of the financier until all installments have been paid as a guarantee for the fulfillment of its rights if the buyer failed to pay the installments on due dates.

The beneficiary shall be obligated to register the property after obtaining the financing amount in order to protect his rights and obtain official evidence of his own to avoid any future disputes.

Registration is an essential step in order to register a mortgage on the property whether by a first-degree official mortgage or by a lien right on the property until the full payment is the due date, then a cancellation of a mortgage shall be made after the payment of all installments.

After the prior consent of the financier, the beneficiary may dispose of the property by sale, donation, rent, or any other way.

The financier may not refuse to approve the disposal of the property except if there are serious reasons that endanger his rights, in such case financier shall notify the buyer of such reasons in writing within 30 days of the beneficiary’s notification to him, otherwise, it may be deemed as accepting the request.

Failure to pay and penalties thereon

The law has regulated procedures to be followed by the financier in the event that the buyer failed to pay at least 3 installments as follows:

  1. In the event that the buyer failed to pay the due amounts within 30 days, the financier shall notify the beneficiary of the payment.
  2. The buyer shall settle his dues or provide a guarantee to the financier for those debts within a period that does not exceed 60 days from the notice date.
  3. If the aforementioned period expires without paying the dues or providing a guarantee, the beneficiary shall be obligated to pay all the remaining amounts within a period not exceeding 30 days from the date of notification.

In the event of non-respond from the beneficiary, the financier shall refer to competent courts to obtain his rights.

What are the advantages of Mortgages in Egypt?

The increase in real-estate prices in the Arab Republic of Egypt is one of the Mortgage’s main advantages, as the buyer will sell the property at a price much higher than the purchase price, therefore the investor will have benefited from any increase in the real estate market in Arab republic of Egypt.

One of the most important advantages of a Mortgage in the Arab Republic of Egypt is the ability of the buyer to pay all the installments and settle the full price before its due date, thus the beneficiary will get rid of the granted loan at a faster time and enjoy absolute ownership without any restrictions.

Recent amendments to Mortgage in Egypt

Financial Regulatory Authority (FRA) issued an amendment to concerned laws by increasing the value of Mortgage installment to become 50% of the beneficiary’s total income instead of 35% and 40% for groups with different incomes in order to increase the base of beneficiaries by increasing permissible credit limit, which provides greater flexibility to obtain appropriate Mortgage.

3% interest Mortgage Initiative in Egypt

Egypt has launched a mortgage initiative with an interest rate of 3%, which aims to provide housing for middle-class and low-income citizens with a long-term payment system of up to 30 years, with an interest rate of only 3%. Among its most important characteristics are the following:

  1. It allows the self-employed beneficiaries to apply for a housing unit mortgage. It is also available to those over 60 years in the condition that the advance payment shall be more than 40%.
  2. This presidential initiative is characterized that the decreasing interest being calculated on the remaining value of the loan, not on the value of the total price.
  3. In addition to the long repayment period of 30 years, which is the longest repayment period ever, it makes the value of the monthly installments lower, thus it increases the opportunity for middle- and low-income to benefit from the such initiative.

Finally, the Egyptian state does not hesitate to pay attention to the Mortgage sector, to be organized and developed in a way that is commensurate with market changes and different requirements and needs, and to provide multiple and different solutions that suit all those wishing to buy and own a property.