Sign in
Sign up
Investors and buyers who took a mortgage to purchase real estate in Dubai, especially if their fixed-rate period is coming to an end, should prepare for their monthly payments to increase soon. Experts believe that the period of low interest rates and easy lending is over. The cost of mortgage and properties themselves will keep growing.
Content:
What happened?
Home owners in the UAE paying off a fixed-rate mortgage will feel the consequences of a 0.75% rate increase after the minimum-interest period is over. Analysts report that over the past two months, the mortgage rate increased by 1.5%, which has already affected the monthly payments to the banks.
This news is particularly relevant for those who took a mortgage in 2019 – 2020, as their 2 and 3-year fixed-rate periods are already coming to an end. At the time, low fixed rates were the most affordable way of buying a home for many borrowers.
Upon expiration of the two or three-year term of fixed-rate payments, regular mortgage payments will fully reflect the latest changes in the interest rates.
What to expect in the future?
UAE banks are still offering fixed-rate loans for 1 – 3 years but with a greater variance, from 3.74% to 5.25%, which increased further after the latest announcement from the Federal Reserve System on July 27. This range, however, is still within acceptable limits.
The higher rates will affect the number of mortgage-secured purchases in the UAE, especially after the rate increased by 0.75% in June. End users’ activity will decline. Those who were going to take a loan and buy a home will now think longer before deciding or even back out of the deal completely.
The smaller number of mortgage transactions may have a ripple effect. July and August are historically slower months due to summer vacations. In 2022, the first year when the Covid-related travel ban was lifted, people started taking longer trips more frequently, thus delaying the important purchase decisions.
Cause for optimism
With the additional monthly payments, a property worth AED 2 million will cost you an extra AED 2,000 or slightly less. This is not much, but the interest charged will depend on several factors, the major of them being:
- Down payment amount.
- Mortgage terms.
- Payment deadlines, etc.
At the 4.5% interest rate and the average return on investment of 5 – 8% per annum, residential property is still the go-to option for investors and buyers who view real estate primarily as a stable asset despite the uncertainty in the global markets.
Even though inflation was one of the causes of growing property prices, owning a home is still a priority in the UAE.
