Since the beginning of the year, observing the increase in mortgage interest rates has been fascinating to say the least. You would expect the substantial rise to cause a decline in mortgage transaction volumes, however this has not been the case.
Over the course of 2022, we all anticipated interest rates to surge since the US Fed announced they would impose measures to control inflation in the US market.
As a result, I witnessed one of the biggest mortgage lenders in Dubai increase their mortgage rate from 2.69 percent to over 4 percent. To put this into perspective, on a property purchase of AED 1 million this would add an additional AED 560 per month on average, which totals to nearly AED 170,000 over the mortgage term, based on a 25-year tenor.
Although interest rates have recently had the steepest upwards move since the early 2000s, I must highlight that mortgage rates are only just leveling back to the rates offered pre-covid. If we look back to March 2020, mortgage borrowing rates were just over 4 percent for a 3-year fixed option, which coincides with the rates we can offer today. In my opinion, this indicates the current market has very much recovered and highlights the strength of the economy.
As the Channel Manager at BetterHomes LLC, I get to see my clients at all different stages of the property purchasing process, helping them connect with lenders to seek out the best fit for them, in terms of their financial situation and of course interest rates.
In Q1 2022, we processed 33 percent more mortgage applications than in the previous quarter and Q2 2022 has been the busiest time for us, with the number of mortgage applications hitting an all-time high compared to the previous two years. From my point of view, this indicates increased confidence in the property market and the urgency to buy before interest rates rise further.
In terms of mortgage enquiries, this year so far our team have received double the amount of qualified buyer leads than they did in Q4 of 2021, this is a huge amount of added potential business. I strongly believe this is because buyers are happy to shop around and liaise with mortgage brokers to evaluate different options, instead of sticking to their banks, which is now a very outdated approach to arranging finance.
In regards to the overall property purchasing time frame, I have noticed buyers are quicker to find and secure properties, whilst in the past the overall process would often take a lot longer. I believe this comes as a result of a few different factors.
Firstly, some banks have reduced the validity time of pre-approvals, from 60 days to 30 days. Secondly, the increase in property prices which gives buyers urgency and finally the steady rise in mortgage interest rates. As I see it, these three factors amongst others, have pushed out any uncertain buyers and created a field of more serious buyers, who know what they want – and that is to buy now.
From evaluating the market, it is clear interest rates will continue to rise as the EIBOR is pegged to the US Fed. However, I think we can expect this to happen at a slower rate, as the property market for mortgage buyers would potentially struggle if they kept increasing too quickly.
For those who already have a mortgage, it would be wise to review your options before the rates increase further, as you could possibly get a better rate by switching your mortgage to another bank. An independent mortgage broker should quickly be able to work out if this is worth your while, as they will know the mortgage options in the whole market.
For those who are looking to purchase a property, my advice based on recent activity is that the best time to purchase is now. If you want to secure a competitive interest rate, take the necessary steps to secure a pre-approval and get out into the market and search for properties.
You will only have a short time to secure the current mortgage interest rate. If you want to compare the market as a whole, I suggest speaking to an independent mortgage broker who will give you advice on the entire market and not just 2 or 3 products, which is common practice with banks.
Finally, although the rise in interest rates may on the surface have created some uncertainty in the property market, one thing is for certain, regardless of economic conditions, property transaction numbers in Dubai have soared.
Rosie Patterson, Mortgage Channel Manager at BetterHomes LLC.
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