Mortgage rates in the UAE will go through some sharp increases, in line with the hikes the US Fed rate decisions. Image Credit: Pixabay

Dubai: UAE residents wanting to buy a home here have one more reason to speed up their purchase decisions.

That’s because if they intent to finance the home deal through a mortgage, they are looking at a significantly higher payout compared to what it would have been last year. That could mean mortgage rates touching 4.75-5.25 per cent at some point during this year compared to the 3-3.5 per cent average available now. When that happens, it would be the highest levels on mortgages since 2018.

On Wednesday (March 16), the US Federal Reserve finally went in for its first base rate hike since 2018, with a 0.25 per cent increase to the near-zero rates that were there during most of the last two years. At the same time, the Fed made it clear that a further six rate hikes are there for the rest of this year, as it tries to tackle high inflation.

This was immediately reflected in the UAE's Central Bank's lending rate.

What the new numbers add up to
The forecasts are for the US Fed rate to rise to at least 1.875% by year end and to around 2.75% by the end of 2023.

"For a case study, if we see an increase from 0.5% to 1.75%, this 1.25% increase will mean increased monthly payments for consumers across the UAE," said Arran Summerhill of Holo.

"If we took an average first-time buyer loan of Dh1 million, borrowed over a 25-year term, a 1.25% increase would equate to a monthly increase in payments of approximately Dh687. Although this does not seem like a huge monthly amount, it will add up to a significant loan over a 25-year period."

The upcoming mortgage rate increases will be coming on top of the steady rise in property prices in Dubai, and which would make it even more expensive for an end-user to get into the market now. According to market sources, the number of mortgage-backed property deals have been steadily increasing since the second-half of last year. “If 2021 started with cash-only property sales representing 70 per cent of the deals, it was down to 50 per cent by year-end,” said an industry source. “In the final three months of 2021, mortgage-linked sales were recording big increases as developers came back with offplan launches.”

Property prices in the more popular residential locations have been trending higher, and the pace of increase has picked up.

According to Arran Summerhill, co-founder of, the digital mortgage platform, "Although we have seen some lenders increase their rates over the past week, it is still not too late (for buyers) to lock in more favourable deals if they move quickly. This applies to both new homeowners, as well as those who are possibly on variable rate mortgages and would benefit from switching their lending to a fixed rate.

Arran Summerhill, co-founder of
Arran Summerhill of Holo: "It makes sense to look into locking rates at this time before all lenders start to increase their margins and overall rates, in light of the Fed announcement." Image Credit: Ahmed Ramzan/Gulf News

"If we look at the deals processed by to date this year, then 94 per cent of the loans submitted to lenders have been on fixed rate deals with only 6 per cent opting for a variable. This shows that people are aware of the rate rises and after discussions with their Holo case manager, have opted for the security offered by a fixed rate."

Go for fixed rates
For now, anyone wanting to take out a mortgage should opt for a fixed rate, at least in the initial year or two. Unless something drastic happens to the global economy, the immediate future will all be about steady upward march on rate hikes.

"Subsequently, they should either take on a new variable rate loan when the market softens, or have the option to convert the fixed term to a variable with minimal penalty clauses such as a loan structure," said Husni Al Bayari, Chairman of D&B Properties.

Developers will take note

One way to counter the higher mortgage costs would be for the developer to absorb some of it, so that price-conscious buyers do not delay their purchase. Expect developers to bring in more of the extended payment plans to make it easier for the buyer to pay back rather than rely on a mortgage.

Another possibility will be developers reducing the initial payment to a bare minimum and then take in most of the payments at or after the handover.

Husni Al Bayari, Chairman of D&B Properties
"It might be wise for the mortgage taker to get a fixed rate for their loan in the short-medium term," said Al Bayari. Image Credit: Supplied

Why rush to buy?

Will the US Fed decision of six more increases this year mean hikes of 0.25 per cent each? Or could it be higher? According to Edward Moya, the New York based analyst at Oanda, “Wall Street is now expecting 75 basis points in rate hikes over the next two meetings. The Fed has positioned itself to aggressively tackle inflation with half-point rate increases on the table.”

Wednesday’s US rate hike was immediately reflected in the UAE’s base rate, and banks will shortly be announcing these changes when they open for business. So, starting today, all loans and mortgages will factor in the hike.