Rising interest rates are not yet a widespread deterrent for UAE mortgage customers, although some brokers have noticed rising cash transactions and a trend towards buyers moving faster to secure the lowest payments possible.

Real estate agents and mortgage brokers said that the majority of customers are now looking to fix their mortgage rates rather than remain at the mercy of further interest rate rises.

Morgan’s Realty said it had seen around 50% of mortgage home buyers taking fixed rate mortgage rates in 2021, compared with around 90% in 2022 as fixed rate deals are now averaging 4.49%.

Rates were as low as 2.39% in 2021, Morgan’s said, with customers at that point fixing their rates for three years.

Cash deals

In its most recent market report on Dubai real estate, Morgan’s reported a much higher proportion of cash transactions as the year progressed.

In Q2 2022 and Q3 2022, the agency reported 8,629 and 8,469 cash transactions and 4,801 and 5,254 mortgage transactions respectively.

In the first quarter, the figures were much closer, with 4,564 cash transactions and 4,461 mortgage transactions, the report showed.

For online mortgage broker Huspy, there has been a noticeable surge in people looking to secure mortgages as rates rise, with the most recent increase in applications being 25% month-on-month.

Sawan Karia, head of Huspy’s broker channel, said the increase could partially be attributed to its own increase in market share, but also rising interest rates.

UAE has competitive rates 

UAE banks are required by the Central Bank of the UAE to revise offers based on current interest rates, said Karia, with more interest rate hikes expected before the end of 2022.

“On average, mortgage rates are at 4.5% as compared to 2.5% last year.  However, the UAE still has competitive rates as compared to a number of other global property markets. Policy makers have played a positive role in balancing market stability with growing demand for property ownership,” he said.

Karia noted the difference in mortgage payments for a customer taking out a fixed rate mortgage now on an AED 2 million property compared to last year, which would be AED2,000 per month. However, the return on investment of 5-8% means buying a home is still a preferred option for those wanting a stable asset amid financial uncertainty, he said.

Rosie Patterson, Better Homes LLC’s mortgage channel partner, said mortgage applications had increased  month-on-month and year-on-year, with Q3 2022 up 80% on Q2 2021 and 33% on Q2 2022.

“We have experienced banks changing rates with shorter notice than they used to. However, this is the new normal for us, and we are getting clients to understand the situation and secure properties quicker, as we know rates might change,” she said.

There has been less interest in remortgaging, Patterson said, as the rate rises impact cost effectiveness.

For mortgage consultant Graham Brown of MENA mortgage matters, affiliated to Dubai-based broker haus & haus, Q1 and Q2 2022 saw consistent applications, with a 10% QoQ increase in Q2, while Q3 decreased by 15%.

Anecdotally, rate increases did start to deter some buyers from February, but rising rents convinced others into buying, he said, adding that exchange rates for the euro and pound against the dollar are also a consideration.

“The biggest barrier to entry is the cash amount required,” he said, “and of course if your funds are in GBP or EURO then they have taken a hit, which may mean that clients can’t buy at the level required.

“Some are simply reducing their budgets accordingly or waiting until there is a return to some normality. Obviously if your funds are held in US dollar then there’s been no change.”

(Reporting by Imogen Lillywhite; editing by Seban Scaria)