A guide to housing loan in Mauritius

Commercial banks in Mauritius offer a wide range of services, from traditional banking to more specialized facilities. Any citizen from any compliant jurisdiction may apply for a bank account opening and subsequently apply for a home loan for the acquisition of a residential property in Mauritius, subject to the Non-Citizen (Property Restriction) Act 1975.

The applicant will first make a formal or informal request to a bank which will respond with a term-sheet detailing the terms and conditions. Should the applicant be agreeable in principle, a formal home loan application will be made via the banker. The bank will then assess the loan application, as in any credit application, based on the applicant’s repayment capacity, security provided and credit history, among other relevant factors. Should the credit application be approved by the credit committee, the bank will issue an official offer letter – to be signed in two copies.

Broad criteria used to assess the appeal of a bank’s proposition for a home loan

Pricing – the interest rate;
Term – the period over which the loan will be repaid;
Security – mortgage of the property, insurance cover, debt-service reserve;
Loan to Value Ratio (LTV) – to determine the equity contribution required from the applicant;
Repayment type and frequency – amortised, moratorium period, bullet repayment, monthly-quarterly-yearly, etc. Banks may usually tailor-make the formula depending on the financial situation or objective of the applicant;
Application Fee;
Early repayment clauses.

The terms and conditions of a loan will depend, among other factors, on the currency in which the loan is contracted. In the money market industry, and often elsewhere, benchmark rates are used to compare interest rates on different currencies. For EUR and USD, the rate commonly used is the London Interbank Offered Rate (LIBOR), and for MUR, the Prime Lending Rate (PLR). PLR is determined at the commercial bank level. All PLRs are however linked to the repo rate of the Bank of Mauritius. In Mauritius, a borrower may apply for a home loan in Mauritian Rupees and in any hard currency. It is important to realise that, should a non-citizen contract a loan in Mauritian Rupees for the purchase of a property under any property scheme eligible for non-citizens, SCS, IRS, RES or PDS, the first USD500,000 should be paid in foreign currency. The repayment of that loan should also be effected in foreign currency.

How to decide in which currency to borrow?

A simple intuitive rule is: “Borrow in the currency of your cash inflow.” Cash inflow or revenue can be salary, dividends, interest, etc. A borrower should be able to service the loan without being exposed to unnecessary currency risks. If a EUR loan is contracted by an applicant with a USD cash inflow, on every repayment date, USD will have to be converted to EUR, which leaves an uncertain and risky factor – currency fluctuation. When deciding on a commercial bank for the application of a home loan, it would be advisable to compare different offers after having ‘shopped around’. Now we have done a survey with four local commercial banks, respectively requesting their present terms and conditions in EUR, USD and MUR. The terms and conditions of the four banks given in the table below are indicative and subject to the respective bank’s onboarding policies and credit committee. They may be finalised or not and at better or worse. The benchmark rates (at 22 August 2018) for LIBOR are as follows: 1-month EUR LIBOR: – 0.39414% p.a. / 3-month EUR LIBOR: -0.36042% p.a. 1-month USD LIBOR: 2.066% p.a. / 3-month USD LIBOR: 2.31175% p.a. Negative rates are floored at 0% by banks.

	Bank A	Bank B	Bank C	Bank D
Pricing
EUR	1-month EUR LIBOR + 5% p.a	3-month EUR LIBOR + 3.75% p.a.	1-month EUR LIBOR + 3.5% p.a	3-month EUR LIBOR + 3% p.a.
USD	1-month USD LIBOR + 5% p.a. (i.e 7.07% p.a.)	3-month USD LIBOR + 3.75% p.a. (i.e. 6.06% p.a.	1-month USD LIBOR + 4% p.a. (i.e. 6.07% p.a.)	3-month USD LIBOR + 3% p.a. (5.31% p.a.)
MUR	PLR (i.e. 5.75%)	PLR – 1.01% p.a. (i.e. 4.84% p.a.)	PLR – 1.70% p.a. (4.8% p.a.)	PLR – 1.1% p.a. (i.e. 4.95% p.a.)
PLR	5.75% p.a.	5.85% p.a.	6.5% p.a.	6.05% p.a.
Maximum Term (years)	15	15	15	10
Security	1. Debt service reserve equivalent to 1-year interest 2. Fire & Allied Insurance 3. Death & Permanent Disablement Insurance	1. First rank fixed charge (mortgage on property) 2. Building Insurance 3. Death & Permanent Disablement Insurance	1. First rank fixed charge (mortgage on property) 2. Building Insurance 3. Death & Permanent Disablement Insurance	1. First rank fixed charge (mortgage on property) 2. Building Insurance 3. Death & Permanent Disablement Insurance
Maximum Loan to Value (LTV)	60%	50%	70%	60%
Repayment	Amortised Can offer moratorium period during construction phase	Amortised	Amortised Can offer 1-year moratorium period	Amortised
Application Fee	USD & EUR: 1% (min. USD3,000/max. USD10,000 MUR: 1% (min. MUR1,000/ max. USD25,000)	1% (max. MUR25,000)	1% (negotiable)	1% (negotiable)
Early Repayment Penalty	1% (not applicable if repayment is from own funds)	1% (not applicable if repayment is from own funds)	1% (negotiable)	1% (not applicable if repayment is from own funds)

On applying for a loan, an applicant may expect an interest rate of 3 to 5% in EUR, 5 to 7% in USD and 4.8% to 5.75% in MUR, per annum. One may expect a term of 15 years. The security requested would be a fixed charge on the property, up to the amount of financing contracted. The maximum a bank may generally finance is 70% of the total value of the property. Therefore, the purchaser should be able to contribute 30% from his own funds. The repayment for a home loan is generally amortized, that is the capital portion owed is repaid over time. The application fee is generally 1%, but an applicant may and we strongly advise that you do request that these fees be capped. Finally, if the loan is repaid in advance from the applicant’s own funds, a penalty for doing so should not apply. Quality real estate promoters and developers such as ENL Property usually have good professional relationships with banks. Banks would generally know about their projects, adding a certain level of comfort in the security provided, i.e. the property being mortgaged. If you have already found a potential home, you may certainly seek some counsel from the promoter or developer before approaching a bank. With the above information you already know what to expect.

Other costs to expect when purchasing property in Mauritius*

It may be advisable to preempt and consider the additional charges when purchasing property in Mauritius.

These are:

Registration Duty: 5% of the acquisition value, payable to the government of Mauritius.
Notary Fees: Sliding scale of 2% for the first MUR 250,000, 1.5% on the next MUR 500,000, 1.0% on the next MUR1m and 0.5% on the remaining amount. For a property costing USD 500,000, the charge should be roughly 0.57%.
Agency Fees: Agents would generally charge 2% on the acquisition value; Insurance: Other than being a necessary comfort to have, banks’ home loan credit conditions usually insist on the property to being insured. Often the insurance would have to be in the bank’s favour prior to the loan being disbursed.

*A wise reflex when speaking to a promoter is to clarify whether these costs are included in the displayed price. The general rule for properties showcased by ENL property are all inclusive, i.e. the price one sees, would be the price one gets.

Refinancing Options

Should an applicant wish to transfer an existing home loan from one bank to another, in the case of a better offer for example, it may be possible to refinance the loan. However, the applicant would have to consider the penalty charges that may apply.

Penalty charges may significantly outway the marginal benefits of refinancing.