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Mortgage rates in the UAE increased drastically in 2022 putting an increasing pressure on homeowners which still have variable rates. Schedule a free consultation call with Lenddoo to simulate your savings. Lenddoo is the UAE’s leading commission free refinance mortgage advisor.
Introduction
2022 has been an amazing year for the UAE and Dubai’s Real Estate markets across all key metrics:
Yet, mortgage buyers are having a grim lookout: UAE Mortgage rates, driven by the 3M EIBOR, increased by 4% in a matter of 12 months. This has 3 direct implications on existing homebuyers:
For every 1M AED of mortgages, Lenddoo Mortgages estimate that homebuyers will be paying an additional ~3k AED / month compared to the same period last year. And while the sky is getting darker every day for variable rates owners, solutions exist for early and savvy mortgage holders to refinance their mortgages into fixed rates.
101. Mortgage structure in the UAE, as explained by Lenddoo Mortgages
When newly homebuyers contract a mortgage to finance their properties in the UAE, these mortgages come in 2 possible forms:
Variable rates follow a typical structure of “1 or 3M EIBOR + Bank margin”. The Bank margin usually goes from 1% to 3%, depending on the bank and the profile of the buyer. 1M EIBOR and 3M EIBOR are indices set and tracked by the UAE Central Bank, which define “the risk-free, basis” mortgage rate in the UAE.
Post the fixed period, all mortgages become variable and follow the structure of 1M or 3M EIBOR + Bank margin, unless refinanced into fixed rates for another period of 1-5Y.
In an environment where rates increase between the moment the mortgage has been contracted and the moment it became variable, mortgage holders end up paying more than the initial monthly payments. We say that homeowners become "exposed" to mortgage rates variations.
102. What happened with the mortgage rates in the UAE?
UAE 3M EIBOR evolution November 2008 – November 2022 – at the highest since the global financial crisis in 2008.
Following the FED, and with the objective to tame inflation, the UAE Central Bank has raised the EIBOR to 4.2%, the highest since the financial crisis in autumn 2008. A year ago, in November 2021, the 3M EIBOR was at 0.2%. It increased by 4% in a matter of 12 months, increasing the pressure on mortgage owners who chose variable rates or did not refinance, and making it even more expensive for new homebuyers.
103. What implications does it have for mortgage holders in the UAE?
Rising mortgage rates in the UAE has 3 main implications on existing mortgage owners:
For every 1M AED of mortgage, monthly payouts are increasing by ~3k AED / month compared to November 2021. (if you have a mortgage of 2.5M AED, you should expect an increase of ~7.5k AED/month)
104. What should mortgage owners do about it?
The UAE banking market still offers cheap fixed mortgage offers for homeowners willing to refinance their mortgages. In fact, as of November 2022, several banks offer 3Y fixed rate mortgages with a fixed rate of 4.4%, much lower than any existing variable rate mortgage. Banks can in fact offer such low-rate mortgages driven by large Retail deposits that allow them to offer mortgages below or approximately equal to the 3M EIBOR mark.
Lenddoo Mortgages, founded in 2022, is already the UAE’s leading refinancing mortgage proptech and has helped hundreds of homebuyers compare, select and get a cheaper fixed rate mortgage.
Holding a variable rate mortgage? Schedule your free 30min consultation video-call with Lenddoo and simulate your savings.
Lenddoo’s services are 100% commission free, as they get remunerated by their banking partners.
Lenddoo Mortgages Refinance FAQ
I am holding a variable rate mortgage in the UAE. Why shall I refinance?
Yes you should refinance your mortgage in the UAE as soon as possible. Here is why:
When shall I refinance my UAE mortgage?
My mortgage rate in the UAE is becoming variable soon. Am I exposed?
Do I have to wait for my rate to be variable before refinancing?
What is the process to refinance my mortgage in the UAE?
What are the fees associated with a refinance?
Despite the fees, which are approximately ~1% of the mortgage, savings over the next 3-5 years are expected to be at the range of 6-7% (~approximately 1-2% per year) which outgrow the fees.
Lenddoo Mortgages, founded in 2022, is already the UAE’s leading refinancing mortgage proptech and has helped hundreds of homebuyers compare, select and get a cheaper fixed rate mortgage.
Holding a variable rate mortgage? Schedule your free 30min consultation video-callwith Lenddoo and simulate your savings.
Looking to acquire a new property? Simulate and compare UAE’s best mortgage rates here.
Lenddoo’s services are 100% commission free and are remunerated by their banking partners.