2017 UAE Real Estate Trends: Outlook On Lending

This article was originally published in propertyfinder Trends Report 2017 – click here to read online (Adobe Flash required) or click here to download PDF instead. To request a printed Report, please email us on marketing@propertyfinder.ae

The year has started strongly with an increase in mortgage applications from 2016 of around 20% in the first quarter, being driven almost exclusively by the owner- occupier sector. This sector is the real catalyst for the market and it’s very healthy to have the demand being driven by genuine use and not speculation.

Investor interest in mortgages is very limited as we see their focus mainly in the off-plan sector where finance is more constricted, and coupled with the advent of 30/70 payment plans being the norm, limits the nance requirement until completion.

The biggest factor in the mortgage market in 2017 will be a steady increase in interest rates. With the cost of local banks’ funding increasing due to liquidity squeezes and the US Fed increases, we are in for a steep hike based on the current data. We already have had two of the main players in the market increase their offering in the first quarter and there will be more to follow.

Will this impact the market? Rates historically are still low and 30% lower than in 2007 – 2008 at the peak of the property boom. Then the increase was being driven by sheer demand, and when property is increasing 25% a year, paying 7% on your mortgage rate still made sense.

Now the dynamic has changed, with a still relatively at housing market being driven by end users choosing to buy rather than rent, if the costs start to tip in favour of renting then we could see a swift knock-on effect.

However, when you look at the average annual cost of a mortgage for a property purchased at AED 2 million it would cost in the region of AED 100,000 per year. The same property to rent would cost in the region of AED 150,000. So rates will have to almost double from today to tip the scale negatively.

Could rates get that high? The best way to protect yourself from increasing rates is to lock in the best deal you can find and at present there are some excellent two and three-year deals still available from banks which will give some respite. Don’t just go to the cheapest introduction deal or floating Eibor deal, as in a rising rate market this is the wrong strategy. By paying slightly more, but locking it in, you will avoid the inevitable jump, think about what would happen if your mortgage went up 30%.

Could you manage? Protect yourself from the start is our advice and 95% of our clients choose fixed-rate options once they have reviewed all the options and scenarios. Your mortgage is a long term liability which you need to keep working on. Ensure you always seek the best offer to minimise your repayments over the term.


Warren Philliskirk Director, Mortgagefinder.ae

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