Rising mortgage rates in the UAE: Why Lenddoo say it's still time to buy

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After historically low rates fell below the symbolic 2% mark last year, mortgage rates are increasing. Combined with strict borrowing conditions, many homeownership candidates find themselves in limbo. And yet, it's always time to make your real estate project a reality.

Indexed to soaring inflation, the rise in the key rates of the UAE Central Bank has inexorably led to a rise in mortgage rates since the start of the year.

By raising its interest rates, the UAE Central Bank intends to slow down demand in order to bring about a fall in prices and therefore a limitation of inflation. However, as demand is still strong, especially in tense areas, it is not certain that this fall in prices will take place or in a moderate way, not allowing the most modest households to regain the purchasing power lost following rising mortgage rates. The latter leads to an increase in the total cost of credit, logically impacting the debt capacity of the UAE residents. And this situation seems set to last since the last increase in September, in an international context favorable to inflation.

A situation to put into perspective

This rise in mortgage rates combined with the slight increase in the wear rate and the debt ratio strictly set at 50% of household income risks compromising the purchase plans of many UAE residents. And particularly the most modest and first-time buyers. Indeed, according to information collected by the Lenddoo Lab, 20,000 households who would have obtained financing last year now find themselves excluded form mortgages.

However, as Basma, a real estate agent from Agency Deja Vu points out, this increase should be put into perspective. For her, “the rates are going up but it is above all that they had never fallen as low as last year”. She adds: “When our parents invested 30 years ago, the rates were much higher”. Indeed, if the rates increase, they still remain below inflation, allowing borrowers to still benefit from favorable borrowing conditions .

Buying, always a good idea

Even if this rise in rates has a sudden impact on borrowers, real estate investment retains its status as a safe haven . And this for four main reasons :

• In times of inflation, many investments are unattractive because their returns are lower than inflation. This is the case fixed deposits or certain life insurance contracts. Investing in a real estate project corresponds to a life project with multiple long-term benefits.

• With a pension reform still pending in the UAE, buying your main residence now also allows you to build up capital and secure your future purchasing power.

• In these inflationary times, rents are likely to increase unlike the monthly repayments of a fixed rate loan. Borrowing now therefore allows you to protect yourself against possible variations in rental prices which increase mechanically year after year.

• Investing today can also increase your purchasing power over time. Indeed, wages increase with inflation, unlike the monthly payments of a fixed rate loan which remain the same over the years.

• Also, with the current inflows of new residents to the city, along with the Football World Cup happening in few months’ time in Qatar, we believe this will keep pushing prices up in the near future.

The need to surround yourself well

But in a vague context, it is more than ever necessary to surround yourself with professionals with a good knowledge of the market. This allows you to have an overview, to access the best financing for your project, to not waste time while the rates increase a little more each quarter.

A qualified broker such as Lenddoo Mortgage Advisors and our experts also allows you to understand the causes of a loan refusal and the possible solutions to optimize your file.

Paying off consumer loans, building up residual savings or mobilizing a slightly larger contribution are all avenues that can make a difference with banks as long as you know how to explore them. As Basma points out , “customers need advice and support more than ever. It is then up to each expert to make the difference thanks to his professionalism, his knowledge of his market and the quality of his network”.

Also, any serious home buyer should also make use of UAE Mortgage Calculators. Lenddoo provides the best calculator in the market to assess property down-payment, mortgage monthly payout as well as the total mortgage and property acquisition costs. 

Are you considering buying a property in Dubai or Abu Dhabi?  For support in getting your mortgage, start your journey and Compare Dubai and UAE’s Best Mortgages, discover Dubai and UAE’s Lowest Mortgages Rates and get pre-approved today with Lenddoo, the most trusted mortgage broker in the UAE!