Mortgage activity is on the rise again in UAE's property market as record low borrowing rates tempt buyers. Image Credit: Shutterstock

Dubai: A property buyer in the UAE taking a mortgage will be better off with a variable rate than a fixed one.

Because “for the first time in many years a variable rate mortgage could, in some cases, be a cheaper option than a fixed rate mortgage,” according to the consultancy Mortgage Finder.

The EIBOR – the Emirates Inter-bank operating rate – is the benchmark that mortgages are set in the UAE. In the recent past, home loan rates have dropped in sync with cuts in the wider bank interest rates. During this period, property buyers have had access to some of the cheapest mortgage financing rates, with some offering these at much lower than 3 per cent.

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Stick to variable

“The only possible change we can foresee is with regards to variable rate mortgages,” said Brendan Kennelly, Senior Mortgage Consultant at Mortgage Finder. “These have, in the past, been a much less appealing proposition for borrowers.

“However, we see potential for variable rate mortgages to become more competitive in comparison to some fixed rate products and a more favorable option among borrowers than in previous years.”

Since early 2020, interest rates have been cut by nearly 80 per cent. The rate of a three-month EIBOR in the final quarter of 2020 - for the first time in years – had a variable rate mortgage cheaper than a fixed rate mortgage.

It won’t last

“Given where mortgage rates are currently sitting, this is not an area we anticipate can fall much further in 2021,” said Kennelly. “This is further solidified by the recent announcement from the US Federal Reserve which stated that there are no interest rate hikes expected for the next two years.”

  1. Mortgage transactions in the UAE increased 40% between first- and second-half of 2020 following lifting of strict COVID-19 lockdown restrictions.
  2. Finance for completed properties accounted for 65% of mortgage transactions.
  3. 97% of borrowers were UAE residents.
  4. 83% of borrowers stated the purchase was to reside in the property.