Dubai-based real estate experts are advising potential buyers to consider opting for fixed-rate mortgages this year, citing the current lower fixed rates compared to variable options and the prevailing uncertainty in short-term rates.
“My advice on fixed versus variable [would] be: opt for fixed,” Stuart Roe, Head of Mortgage Services for Allsopp & Allsopp said.
“Banks still have some good 3-5 year fixed rates well below the current base rates and the reason for this is because there is so much uncertainty in short-term rates at the moment,” he added.
Fix a mortgage due to stable interest rates in the UAE
In 2022, Dubai saw a record high of 16,700 mortgage transactions in 2022, with an average mortgage value increase of 7 percent to AED1.67 million, as per a report by MortgageFinder.ae.
The report showed that residents accounted for 95 percent of mortgages, with UAE citizens accounting for 82 percent of borrowers.
In addition to this, with fixed interest rates ranging from around 4.5 percent to 5 percent, industry professionals are suggesting a fixed-rate mortgage as the preferable choice for homeowners in the current economic climate.
Mortgage rates in the UAE are closely tied to the Emirates Interbank Offered Rate (EIBOR), which, in turn, is influenced by the actions of the US Federal Reserve due to the dollar-dirham currency peg.
In November, the UAE Central Bank announced no change in the Base Rate for the Overnight Deposit Facility (ODF) at 5.40 percent, following the US Federal Reserve’s decision to keep it monetary policy rate unchanged.
“While there’s an expectation of interest rates eventually decreasing, the process will take time before variable rates align with the current advantageous fixed rate,” Jeffrey De Souza, Head of Mortgages at Lomond (an affiliate of Betterhomes) said.
The US Federal Reserve’s decision on interest rates, according to Roe, could also be influenced by the outcome of the presidential election and its impact on the global economy – affecting the UAE.
“The stability in these interest rates offers a sense of predictability and financial security, making the idea of owning a home quite appealing,” he said.
Mortgages more ‘economical’ than paying rent
However, predicting interest rate changes is complex, considering various factors such as economic indicators, geopolitical events, and market sentiment.
Homebuyers are advised to carefully evaluate their financial plans and consider the stability offered by fixed-rate mortgages.
“No one can say for sure, and that is why now more than ever, a new homeowner wants to be certain about their outgoing costs, and now is the time we need to be prepared with our income and expenditure plan,” Roe said.
De Souza suggested that exploring refinancing – a process homeowners go through to change the interest rate and/or terms of their current mortgage – now could save money long-term, with lower interest rates providing budget flexibility.
“Mortgage payments remain comparatively economical when contrasted with rental prices for equivalent units,” he added.
Consumer purchasing patterns are shifting towards increased emphasis on long-term investments, as tenants express a preference for property ownership over renting.
Recently, Arabian Business reported that the Dubai real estate sector has achieved records this year, however, residents have seen high rental costs, leading many to look at buying property in the emirate.
“It a good time for potential homebuyers to consider their options. The stability in these interest rates offers a sense of predictability and financial security, making the idea of owning a home quite appealing. So, if you’ve been thinking about making the switch from renting to owning, the current conditions in the Dubai mortgage market might just be in your favour,” De Souza said.
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