|12 January, 2020

Mortgage enquiries surge 59% in UAE: report

Current lower property prices combined with favourable interest rates have driven up mortgage enquiries

Close up of signing a mortgage contract in the office. Image for illustrative purposes

Close up of signing a mortgage contract in the office. Image for illustrative purposes

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Current lower property prices combined with favourable interest rates have driven up mortgage enquiries by 59 percent across the UAE, according to Mortgage Finder, the mortgage consultancy part of the Property Finder Group, a leading property portal in the Mena region.

Many of these requests for home finance have been from those on the higher end of the scale. However, the current property prices have not only led to an increase in interest from those on higher incomes.

Mortgage Finder has also found an 11 percent increase in enquiries from clients earning between Dh10,000 ($2,722) to Dh12,000 per month between 2018 and 2019. Approximately 5 percent of enquiries to Mortgage Finder come from those in this income bracket.

Of the enquiries received by Mortgage Finder, the average property price that those in this bracket consider is Dh795,000.

While Mortgage Finder has always received enquiries from those in this income bracket, this increase can be attributed predominantly to the current property prices and the competitive interest rates offered by banks, which have both come together to make buying more accessible to some who may not have been able to do so previously. Lower mortgage interest rates also mean lower repayments for borrowers, leaving them with more disposable income.

There was a reduction in interest rates in 2019 as the UAE Central Bank cut rates thrice, in line with the US Federal Reserve. Lower interest rates translate into lower borrowing costs, so that’s good news for new borrowers as well as existing borrowers.

Banks have been more competitive with regards to the mortgage products they are offering. In 2018, the average mortgage interest rate was in the region of 3.99 percent. However, in recent months, there have been notable decreases, with some rates as low as 2.75 percent fixed for one year. Some banks have also lowered their reversion margins, which will be of benefit after the initial fixed rate period ends.

While interest rates are not a deciding factor in whether to buy, the lower rates are definitely an encouraging factor for those who are sitting on the fence with their property purchases. The rates released recently by some leading banks are now closer to those offered by lenders in other parts of the world, like Europe, which clients tend to compare to when considering finance options.

“When banks calculate affordability and stress tests today, those who may not have passed the tests previously have a better chance of doing so now as a lower property price and interest rate means lower monthly mortgage repayments,” explained Richard Boyd, director at Mortgage Finder.

In general, banks require a minimum salary of between Dh10,000 to Dh12,000 to give a mortgage. When getting a mortgage in the UAE, banks will look at the borrower’s affordability. To measure this, they will take into account 50 percent of the borrower’s monthly income and deduct any credit commitments from this to calculate maximum affordability. They will then apply a stress test by applying a higher rate of interest (varies depending on each bank) to ensure that should interest rates rise, the buyer will still be able to afford their mortgage repayments.

“There is no doubt that this is currently a buyers’ market, and it’s great that some of those who may not have been able to buy earlier are now getting the opportunity to invest in the property market here and own their home. Whichever end of the income scale you are on, if you are interested in buying in the UAE and have your down payment ready, now is a great time to do so,” said Boyd.

Mortgage refinancing has also become more attractive due to the lower rates, as well as the removal of the 3 percent early settlement fee penalty by the UAE Central Bank in October 2019.- TradeArabia News Service

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