UAE Interest Rate Rise: Homeowners Better Lock In Mortgage Rates For ‘3-5 Years’


Dubai: Interest rates are 0.50% higher – and the only thing UAE property buyers looking for a mortgage should do is try to lock in their finance rates for a longer period long. This represents the best option for them to offset the higher cost of real estate financing, which will see further increases throughout the year.

The half-percentage hike on Wednesday, May 3 would impact mortgage rates by 1 to 1.5 basis points between lenders. “This means that for every Dh500,000 borrowed, it could cost an additional Dh5,000 per year,” said Michael Hunter, co-founder of Holo, the DIFC-based mortgage platform. “However, it’s not all bad news – locking in a long-term fixed rate of three to five years at a lower interest rate – while rates remain low – could mitigate the risk of fluctuating expenses. And probably come out of the period of high interest rates.

This is the second increase since March, when the Fed raised its base rate by 0.25% and also signaled more “aggressive” increases to come. Wednesday’s rise certainly qualifies as “aggressive.”

Locking has its downside – “Lenders offer fixed rate periods of up to five years, however fixing for a longer period means the interest rate is likely to be higher,” Hunter said. . “It’s because the lender makes the assumption that over a period of time they won’t incur a loss on their costs.”

Michael Hunter (left) with Arran Summerhill of Holo. “Before the pandemic, mortgage rates were generally 3.99%, whereas they had fallen to around 2.69% during the pandemic. Rates are heading towards pre-pandemic levels and with the possibility of further increases by the end of the year,” says Hunter.
Image credit: Ahmed Ramdan/Gulf News

Changing mortgage lender?

Mortgage borrowers might also consider switching banks if it means getting a more favorable loan rate. “Those considering buying property in the UAE at a higher rate can rest assured that they will be able to switch lenders in the future,” Hunter said. “UAE Central Bank rules mean that if you want to make the switch, a maximum exit penalty of 1% will be applied – but this is capped at Dh10,000.

“A mortgage rate will only be locked in once the lender has taken out the loan, so if you are considering switching lenders, act now to take advantage.


The exit penalty for a mortgage borrower in the UAE for changing banks

Fall in mortgage buyers

In the first three months of this year, purchases of mortgage-backed homes in Dubai were down from a year ago, according to data from It also means that the Dubai property market is attracting more instant buyers, especially after the outbreak of hostilities in Ukraine. A significant percentage of new buyers come from Europe, according to market data.

For the UAE real estate market to maintain momentum from 2021, there will need to be a steady influx of more end users thinking about home ownership. Right now, they face two outcomes – and neither is favorable. On the one hand, property values ​​are steadily increasing, with the average transaction value of an off-plan property during the first quarter of 2022 being 16.90% higher than it was last year. For a ready apartment, the increase in average transaction value is closer to 20-30%, according to figures from

Pay attention to your expenses

Borrowers in the UAE should keep other details in mind, including their monthly expenses as a percentage of their income. Because Earnings to Salary Ratio (ESR) will be added to all other borrower information by Al Etihad Credit Bureau, to help banks read credit profiles better. For end users wishing to secure home financing, they will need to stay on the safe side of all of these scores.

According to the developers, the US Fed’s insistence on multiple rate hikes will make end users decide to buy a house soon. “If they’re thinking about mortgages, there’s no reason for them to wait and pay extra as rates go up,” one developer said. “On our end, we can reduce down payments, offer more incentives such as fee waivers and even offer direct financing.

“But those decisions have to come quickly.”

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