(MENAFN – Khaleej Times)
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The status quo
Dubai’s real estate market boomed in 2021 and continues to show strong signs of strength in 2022. However, a major cloud is looming as mortgage interest rates have been rising steadily since the start of the year.
A major indicator: EIBOR, (short for the Emirates Interbank Offered Rate – the benchmark interest rate for interbank lending within the UAE) increased by around 2.5% between November 2021 and August 2022 (3M EIBOR).
This increase translated into much more expensive mortgage rates. In February 2022, the main 5-year fixed mortgage supply was at ~2.5%, while in August 2022 the main 5-year fixed mortgage supply was at ~4.5%, or 2 points more percentage.
Nor are the forecasts bright: the US Federal Reserve has announced a number of additional hikes through the end of 2023, some of which are expected to be “aggressive”, and while historically the UAE Central Bank has followed the FED almost 1 to 1, this means that mortgage rates in the UAE should continue to rise, until inflation starts to show signs of slowing down.
Pay attention to your expenses
What this actually means is that it will put major pressure on new property buyers and existing owners with variable mortgages:
1. For existing owners with variable mortgages:
On a 2M mortgage, variable mortgage holders could pay up to ~3.5k AED/month just to cover the additional interest rate compared to what they were paying 6 months ago
2. For new buyers looking for a mortgage:
On a $2 million mortgage, homebuyers would pay just as much more.
Make the right choice, quickly
Borrowers in the UAE will have to make critical choices to avoid being burned with higher interest charges.
1. For existing variable rate borrowers:
It will be essential to refinance your mortgages as soon as possible and to obtain a fixed rate for at least 3 years. The leading 3-year offer in August 2022 is still below the 3.9% mark, and Lenddoo can help you refinance your existing mortgage at no cost.
2. For new buyers:
It will be important to choose a mortgage offer with a fixed rate for at least 3 years. While some buyers try to over-optimize in the short term by going for cheaper rates (1 year or variable), this can be a major risk as rates continue to rise. Lenddoo can help you find the mortgage that suits your profile.
“But those decisions have to come quickly.”
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