Rate cuts nearly over — but loan costs will still drop for UAE residents in 2026

Dubai: After two expensive years of borrowing, many people in the UAE are finally getting a bit of good news: the cost of loans, mortgages and credit cards is expected to drift lower in 2026. The change won’t be dramatic, but it could make everyday life slightly easier for households trying to balance rent, school fees and rising living costs.

This shift is happening because the US Federal Reserve — whose decisions directly influence UAE interest rates — has already cut its main rate several times since 2024. And although it now plans to slow down, even these small steps help ease the pressure on UAE borrowers. With the dirham pegged to the US dollar, UAE rates naturally follow the Fed’s lead.

For now, the Fed expects only one more cut next year and one in 2026, signalling that the big wave of rate relief is over. Still, even gentle cuts offer some breathing room — especially for people with mortgages and variable-rate loans.

Fed Chair Jerome Powell called the latest cut a “prudent adjustment” and made it clear that the Fed isn’t rushing into a long cutting cycle. Policymakers now expect the economy to stay steady without needing large rate drops.

Daniel Siluk, an investment specialist who tracks rate decisions, explained it simply: the Fed no longer believes in “pre-emptive easing,” meaning it won’t cut aggressively unless something in the economy weakens. All projections show just one cut a year ahead.

What matters for UAE residents is that even these small changes still flow into local borrowing costs — in time.

Markets rose sharply when the Fed announced its decision, before turning volatile. Neal Keane from ADSS said investors were hopeful at first because Powell sounded less harsh than expected, but concerns about slowing tech and AI spending wiped out much of the early enthusiasm.

Keane also noted the dollar weakened as the Fed showed more willingness to ease than markets expected. This matters because a softer dollar often supports slightly lower UAE borrowing costs.

While this kind of financial turbulence might seem distant from daily life, it influences how quickly banks adjust the rates on mortgages, loans and credit cards. The more uncertain global markets feel, the more slowly banks tend to pass rate cuts onto consumers.

UAE mortgage holders — especially those on variable rates — are likely to be the first to feel the change. Payments won’t drop overnight, but banks usually adjust variable rates gradually after the Fed moves. For homeowners, even a small monthly reduction can help offset rising day-to-day expenses.

Fixed-rate buyers may not see big discounts yet. US mortgage rates themselves hardly moved after multiple Fed cuts, and the UAE often mirrors that trend. Still, the direction is now downward, which is better than the steady increases of the past few years.

People planning to buy a home in 2026 may find slightly more affordable monthly repayments, which could mean the difference between choosing a smaller property and stretching to the one they really want.

These areas tend to move more slowly, but they will shift.

Nothing will transform overnight, but families and entrepreneurs should feel borrowing become slightly less restrictive as the year progresses.

Even small rate cuts can boost confidence in the property market. When borrowing becomes cheaper, even by a small amount, more people consider purchasing a home or upgrading from an apartment to a villa.

This optimism was visible immediately after the Fed announcement. UAE stock markets rallied, helped by banking and real estate companies, which tend to perform better when loans become easier for people and businesses to access.

If lending continues to loosen, 2026 could bring a healthier flow of buyers and investors into the property market, supporting prices and activity.

The US experience over the past year gives a clear clue about what to expect here. Even after several rate cuts, American borrowing costs barely moved for credit cards, auto loans and long-term mortgages.

Savings rates, on the other hand, fell much faster than loan rates. Variable-rate products reacted first, and everything else lagged behind. That same slow and uneven pattern usually shows up in the UAE because local banks tend to wait for clearer signals before adjusting their products.

Another lesson is that US consumers still faced high borrowing costs despite the Fed’s cuts because many lenders kept rates elevated to protect margins in a volatile market.

UAE banks often behave in a similar way during uncertain periods. That means residents should be prepared for a gradual easing of costs rather than expecting immediate discounts. The direction is positive, but the pace will be measured, and different types of loans will adjust at different speeds.