UAE’s property buyers have to make some fast decisions as mortgage rate hikes loom

On Wednesday (March 16), the US Federal Reserve finally went in for its first base rate hike since 2018, with a 0.25 per cent increase to the near-zero rates that were there during most of the last two years. At the same time, the Fed made it clear that a further six rate hikes are there for the rest of this year, as it tries to tackle high inflation.

This was immediately reflected in the UAE’s Central Bank’s lending rate.

The upcoming mortgage rate increases will be coming on top of the steady rise in property prices in Dubai, and which would make it even more expensive for an end-user to get into the market now. According to market sources, the number of mortgage-backed property deals have been steadily increasing since the second-half of last year. “If 2021 started with cash-only property sales representing 70 per cent of the deals, it was down to 50 per cent by year-end,” said an industry source. “In the final three months of 2021, mortgage-linked sales were recording big increases as developers came back with offplan launches.”

Property prices in the more popular residential locations have been trending higher, and the pace of increase has picked up.

One way to counter the higher mortgage costs would be for the developer to absorb some of it, so that price-conscious buyers do not delay their purchase. Expect developers to bring in more of the extended payment plans to make it easier for the buyer to pay back rather than rely on a mortgage.

Another possibility will be developers reducing the initial payment to a bare minimum and then take in most of the payments at or after the handover.

Will the US Fed decision of six more increases this year mean hikes of 0.25 per cent each? Or could it be higher? According to Edward Moya, the New York based analyst at Oanda, “Wall Street is now expecting 75 basis points in rate hikes over the next two meetings. The Fed has positioned itself to aggressively tackle inflation with half-point rate increases on the table.”

Wednesday’s US rate hike was immediately reflected in the UAE’s base rate, and banks will shortly be announcing these changes when they open for business. So, starting today, all loans and mortgages will factor in the hike.