Dubai mortgage holders squeezed by end of low fixed rates

Pexels/Mikhail Nilov

• Dubai mortgage rates doubling
• Homeowners renegotiating loans
• Banks are ‘flush with liquidity’

Purchasing a home in Dubai for AED2 million ($544,600) in 2021 meant manageable monthly mortgage payments of about AED7,600, at a 2 percent interest rate secured for three years. 

With these fixed-rate contracts now expiring, home owners have told AGBI that banks are rolling over to rates as high as 7 percent, resulting in monthly repayments rising by more than half to around AED12,000.

This hike in rates has driven homeowners to renegotiate with lenders.

---

---

Despite the extra financial burden being placed on Dubai mortgage holders, experts remain optimistic about the market’s stability.

With rental returns averaging 6 to 7 percent and asset values appreciating in the double digits, Sawan Karia, a director at digital mortgage platform Huspy, said healthy yields help to cover any increase in the cost of the mortgage, acting as a buffer against high delinquency levels.

Delinquency rates compare the percentage of loans that are overdue to the total number of loans.

Jeffrey De Souza, head of financial services at Lomond, an affiliate of Betterhomes, said renegotiating rates and remortgaging properties was an option.

He added that many banks are working to retain clients by offering them favourable fixed rates. 

But Stuart Roe of real estate agency Allsopp & Allsopp pointed out the complexity of the refinancing process amid new affordability stress tests and new rates hovering 50 to 75 points above baseline. 

He said the new calculations mean people cannot borrow as much, which may be an issue when looking to switch lenders for a better rate. 

Nonetheless, he said the banks were “flush with liquidity” and want to lend so they are willing to talk to borrowers eager to switch.

• Kuwait banks boosted by likely mortgage law reform
• Liquidity strain set to push Saudi banks to seek more funds
• Abu Dhabi is getting serious in its bid to lure the wealthy

Srinivasan Padmanabhan, mortgages business manager at Mashreq, said the bank has not seen any significant increase in delinquency rates, even as clients shift from fixed to variable rates.

“Property prices continue to be on the rise and loan to values are favourable for most loans and mortgages, allowing clients to reprice their facilities by renegotiating interest rates,” he said. 

Loan to value is the ratio of the value of the home you want to buy and the loan you would need to buy it, shown as a percentage.

The US Federal Reserve left interest rates unchanged at the conclusion of its March meeting, but held onto its forecast for three cuts in borrowing costs this year.

The anticipation of further US Federal Reserve rate cuts could ease pressures, making fixed rates even more competitive.

Huspy’s Karia said homeowners can switch or refinance their mortgages to new providers, securing rates as competitive as 4 percent. 

“Banks are being extremely competitive by offering rates below the cost of funds, which indicates that they are preparing for a broad interest rate reduction,” he said. 

However, homeowners expressed frustration to AGBI over the sluggish pace at which banks are handling rate renegotiation requests. 

“All the bank said was that I can submit a request, but that negotiations with the mortgage team will take time,” one said.