UAE’s property buyers will have some adjusting to do on their mortgage bills in 2023


Have you been planning to take a mortgage to purchase a property in the UAE? You might have to make some changes to your plans. The low home financing rates in the country will see a rise in the year 2022.

According to reports from a Reuters survey, the price of residential properties in Dubai will see an increase of 5% in 2022. It was initially predicted that the rise would be around 2.5%. 

A lot of property investors had already made their minds before the year 2022 kicked in with a rise in home financing rates. It is quite evident from the rise of mortgage-backed home sales in the second half of 2021. In the last six months of 2021, mortgage-backed home sales made up half of the overall property sales. Homeowners did not fail to take advantage of the low mortgage rates at around 3% to 3.5%. 

The value of properties in the UAE marked a sharp rise in the period between 2014 and 2015. But property values at most locations in the country were available at way below the peak rates in 2014 and 2015. However, the low value of properties will cease to exist from this new year.

The prices of properties at varied locations are showing a steady rise. The surge is expected to continue at around 3% even in the year 2023. 

Some of the long-term rental areas include Al Nahda, Bur Dubai, Dubai Silicon Oasis, and Jumeirah Village Circle. On the other hand, some particular locations for luxury units include Palm Jumeirah, JBR, Downtown Dubai, and Dubai Marina.

The two prime end-user locations, Dubai Marina and Downtown Dubai, are in particular likely to witness the rise in property prices. The jacked-up home finance costs will be accompanied by more than one rate hike in terms of mortgage rates.

But mortgage rates will see an increase for another leading reason. The UAE Central Bank has announced a closer watch on the local banks. All lending’s related to real estate, including mortgages, will be under the supervision of the UAE Central Bank. Due to the scrutiny of a higher regulator, the banks are likely to turn more conservative. All types of financing related to real estate will become more complicated than earlier. 

What Can A First-Time Property Buyer In The UAE Do In This Scenario?

Experts have suggested that opting for a long-term fixed rate will be more beneficial for first-time buyers. The most prudent choice will be mortgaging between three and five years linked to a low follow-on rate. It will ensure that first-time buyers can budget for the longest possible term. It will also help in mitigating risks in the case of changing circumstances. 

First-time buyers can be saved from unexpected bills by settling for long-term fixed rates. Sometimes variable rates seem appealing to first-time buyers. But a first-time property buyer in the UAE needs to remember that this is a period of low-interest rates.

It can only be estimated that the interest rate will be on the rise in the upcoming days. Therefore, sticking with fixed rates would be a cautious step to take in the current scenario.

Why Should You Choose Fixed Rates Over Variable Rates?

The current market trend shows that an increasing number of people are settling for fixed rates over variable rates.  

Fixed rates offer a lot more security than variable rates in the current scenario. People looking forward to a budget for a specific period of time should choose fixed rates without second thoughts. In fact, even lenders favor fixed rates over variable rates in the present circumstances. Banks offer more options in terms of fixed rates than variable deals.

The fixed rates can be for one year or for as long as fifteen years. But the mid-term options from three years to five years are more convenient. It enables people to assess their plans at the end of the fixed rate deal period. People looking forward to refinancing their current home loan should not let go of this opportunity. They can switch to a cheaper deal if their current rates are higher than market rates.

Choose The Best Mortgage Rate

ADCB is currently advertising their mortgage rates below 3%. On the other hand, Emirates NBD has pegged their rate around 4.5% to 5%. Some other leading local lenders have kept their rate around the 3.5% mark.

Some lenders try to counter the low rates with the help of a floor rate. It indicates that the mortgage rate will not fall under the floor rate irrespective of market conditions. It creates a huge sense of security for lenders. 

Wrapping Up

Homebuyers need to focus on some factors beyond the interest rate. The factors include fee finance, offset accounts, and overpayment allowance.  


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