Planning to take a mortgage to buy a home in the UAE? It’s time then to make up your mind because the current low home financing rates will see increases next year onwards.
Many in the UAE had already made up their minds, as is evident from mortgage-backed home sales making up 50 per cent of the overall during the last six months. These homeowners have thus taken advantage of mortgage rates at or around the 3/3.5 per cent mark – as well as the fact that property values are still at most locations way below their 2014-15 peaks.
But that run is coming to an end. Home prices across locations are stabilizing or showing signs of steady increases. Market sources say two prime end-user locations – Dubai Marina and Downtown – will likely see prices go up at some point in 2022.
On the mortgage side, the US Federal reserve has indicated there will be more than one rate hike, and which immediately jacks up home finance costs here.
The Mortgage Management Options
Stick with fixed rates
More people opt for a fixed rate over a variable rate at the moment. The mortgage-focussed online portal. With the security that fixed rates offer, they offer a very good option for people who are looking to budget for a set period of time. Lenders are also favoring fixed rate products at this time with more options available from the banks than variable deals.
Pick the best rate
There are mortgage rates being advertised for under 3 percent from ADCB, while Emirates NBD has pegged it at just over 3 percent. Other leading local lenders have it at the 3.50 percent mark.
In the recent past, Lenders have moved to counter some of these low rates by implementing a floor rate. This means that regardless of the market conditions, the rate will not drop below this floor rate. This ensures a certain level of security for lenders.
Since the start of the pandemic, we have seen a large percentage of owners buying their second property or upgrading to a larger property by selling their existing property. We can assume this is based on the lower cost to purchase, including purchase prices and interest rates.
This number has now slowed down with mainly new buyers coming into the market. If you currently have a mortgage and are looking to take a mortgage on a second property, your loan-to-value will be 65 per cent for Emiratis and 60 per cent for expats.
Other factors that home buyers should consider beyond interest rates relate to the fee finance, overpayment allowance, and offset accounts.
Some lenders will assist in adding a percentage of the associated costs of buying to the mortgage, thus reducing the initial upfront cash required to buy a property.
This will ultimately cost more in interest outgo, but if managed correctly can be minimal with banks allowing over payments without penalty. This allows you to pay this off sooner.
Offset mortgages can be extremely helpful - some banks will allow you to open an account where you can deposit savings and salary. The total amount held in this account will be offset against the interest on your mortgage and - ultimately - reduces the term of the loan and gives access to the cash when needed.
Adler and Partners offer property investment advice and company formation services in the UAE. You can visit https://topconsultantsdubai.com/ or send us an email to info@adlerandpartners.com to get started in investing in the UAE today.
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