UAE’s property buyers will have some adjusting to do on their mortgage bills in 2022

Written by Publishing Team


At the moment, home purchases in Dubai are in full swing between cash deals and those involving real estate loans. Helped mortgage rates are at historic lows.
Image Credit: Pixabay

Dubai: Are you planning to take out a mortgage to buy a house in the UAE? Then it’s time to make a decision as the current low mortgage rates will see increases next year onwards.

Many in the UAE had already made up their minds, as evidenced by mortgage-backed home sales that made up 50 per cent of the total over the past six months. Consequently, these homeowners have benefited from mortgage rates at or around the 3/3.5 percent mark — plus the fact that property values ​​in most locations are still well below their 2014-2015 peak.

Holo founders, Michael Hunter and Arran Summerhill, present the pros and cons of mortgages and the best options available.
Irish Aiden R. Blaise and Ahmed Ramadan / Gulf News

But this run is coming to an end. Home prices in all locations are stable or showing signs of steady increases. Market sources say two major end-user locations – Dubai Marina and Downtown – will likely see a price hike sometime in 2022.

On the mortgage front, the US Federal Reserve has indicated that there will be more than one rate hike, which immediately raises mortgage costs here.

There is also a third element – the Central Bank of the UAE recently announced that it will closely monitor the mortgage lending of local banks, including loans issued as mortgages. “The higher scrutiny of regulators immediately means that banks are going to be conservative when it comes to lending on all types of mortgage finance,” said an industry source.

So, what are the options for someone who wants a mortgage right now?

What should a first time buyer do?

Choose to take a long-term, flat rate of 3 to 5 years with a low follow-up rate – this is the suggestion from Holo founder Michael Hunter.

“This allows you to budget for the longer term and mitigate risks in any changing circumstances or unforeseen bills. Although variable rates can be attractive – because we are in a low interest rate period – we can assume that rates are likely to increase and will be cautious When taking a product like this in the current market.”

Stick to fixed rates

“We’re seeing more people choosing a fixed rate over a variable rate right now,” said Aran Summerhill, co-founder of Holo, a mortgage-focused online portal. “In 2021, we saw 60.1 percent of Holo applicants choose a flat rate — these are new purchases and also people looking to refinance.

“With the security that fixed rates provide, they provide a very good option for people who are looking to budget for a fixed amount of time. Lenders also prefer fixed rate products at this time with more options available from banks than variable deals.

“Fixed rates vary anywhere from 1 to 15 years; however, we see people looking at 3-5 year mid-term options, with a plan to value their deal afterward at the end of the fixed price period.”

Choose the best price

Mortgage rates below 3 per cent are announced by ADCB, while Emirates NBD has pegged them at just over 3 per cent. Other leading local lenders carry 3.50 percent.

“In the recent past, lenders have moved to counter some of these lower rates by implementing a minimum rate,” said Michael Hunter, co-founder of Holo. “This means that regardless of market conditions, the rate will not fall below this minimum rate. This guarantees a certain level of security for the lenders.”

“Since the beginning of the pandemic, we have seen a large percentage of owners purchase their second property or develop into a larger property by selling their existing property. We can assume that this is based on the lower purchase cost, including purchase prices and interest rates.

“This number has now slowed with mainly new buyers entering the market. If you currently have a mortgage and are looking to get a mortgage on a second property, the loan-to-value ratio will be 65 percent for Emiratis and 60 percent for expats.”

  1. Other factors that home buyers should consider other than interest rates are related to financing fees, overpayment allowance and clearing accounts.
  2. Some lenders will help add a percentage of the costs associated with the purchase to the mortgage, thus reducing the initial cash amount required to purchase a property.
  3. This will eventually cost more interest expense, but if managed properly it can be minimal while allowing banks to make additional payments without penalty. This allows you to pay off this sooner.
  4. Offset loans can be very useful – some banks allow you to open an account in which you can deposit savings and a salary. The total amount held in this account will be offset against the interest on your mortgage – and eventually – reduce the term of the loan and provide access to cash when needed.

About the author

Publishing Team

Leave a Comment