What a Fed rate hike means to UAE mortgages

Our Managing Director, Sawan Karia, was recently asked to provide Gulf News’ readers an opinion on how changes in the US interest rate impact UAE mortgages and homebuyers.

The last US rate hike was widely expected and priced into the market, so no significant impact was felt in the UAE and rates remained stable. Home Matters expects one or two further rate increases by the US Federal Reserve before year-end. There is a high correlation between US rates and the UAE Central Bank Emirates Interbank Offered Rate (EIBOR) rate, so we are likely to see a marginal increase in mortgage rates here. Variable rates offered in the form of EIBOR-linked or bank variable rates will rise with all banks in the UAE. However, many banks are already reducing margins to remain competitive and still offer attractive fixed rates for one to two years.

We have already seen a shift in customer appetite with most now looking for fixed rates instead of variable products. Longer-term fixed rates are few and historically, the maximum fixed rate period seen in the UAE was for five years. Only a handful of banks would offer such options and these have been removed or seen significant increases to counter future rate movements. The increase in rates might make buying less attractive, but rents remain stable, and with more affordable housing projects being handed over, expats wishing to stay in the UAE for the long term are taking advantage of what is still very much a buyer’s market. Sellers are also becoming more motivated with the probability of increased borrowing costs.



Originally published in http://gulfnews.com/business/property/what-a-fed-rate-hike-means-to-uae-mortgages-1.2071133

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