Should New UAE Homebuyers Consider Mortgages With 3- Or 5-Year Lock-Ins?

UAE Home Buyers

Property Buyers In The UAE Are Less Eager To Pay “Landlord Mortgages” Today

In the UAE, first-time buyers of real estate have just over a quarter to decide whether they would be better off submitting a mortgage application to a bank. Or selecting one of the development company financing options. The US Federal Reserve is expected to raise rates again next week by 0.5 percent. In addition, the UAE Central Bank will likely follow suit in February.

The question they must answer is how to structure the deal. If they decide that getting a mortgage is still the best course of action. The most common option for first-time home buyers has been a fixed rate for the first 3 years. Many current investors have also been successful in refinancing with the 3-year rate lock-in to control their monthly payments.

Leading Dubai developers are optimistic that despite ongoing increases in mortgage costs. The buying frenzy seen throughout this year will continue into 2023. The majority of buyers are aware that the interest rate (increase) is relatively negligible in the grand scheme of things, according to Farhad Azizi, CEO of Azizi Developments. “In Dubai, rental yields continue to far outpace mortgage payments. Due to rising property values, real estate is a lucrative, high-RoI (Return on Investment) investment option that is still incredibly profitable.

Why Would You Pay Off Your Landlord’s Mortgage?

Whether they are purchasing a home outright in cash or using a combination of equity and debt. Azizi has another argument prepared to persuade potential buyers. Invest in real estate in Dubai and stop renting. Additionally, stop paying the “landlord’s mortgage.”

Those who move from renting to owning are aware that their investment will eventually pay for itself, according to Farhad. Moreover, once the mortgage is paid off, they prefer to pay themself with them rather than keeping their property asset.

In Dubai, almost all of the major developers now provide financing through their businesses. With the 1 percent per month payment option continuing to be the industry standard. As developers look to take advantage of all the opportunities that granting freehold rights brings in terms of new buyer demand. This one percent option is also beginning to be seen in Sharjah.

Q1 of 2023 Will Be Crucial

If the pace of buying activity has continued, the final real estate sales total for December. The first few weeks of 2023 will be sufficient to answer this question. In addition, what proportion of those sales are backed by mortgages?

Are Buyers Of Real Estate Persuaded?

As the US central bank continues to try to control inflation, there have been seven rate increases this year. Which have been reflected in mortgages. (As part of their currency peg to the dollar, the central banks of the UAE and the Gulf states match these rate changes.) Deals on real estate backed by mortgages did slow down in the last three months of this year. As new buyers balked at consecutive rate increases. These buyers are uncertain of whether they should accept a mortgage burden. That would change over time, even with a 3-year lock-in.

A 5-Year Commitment

By providing 5-year lock-ins, some banks in the UAE are attempting to allay these buyers’ concerns. As a result, property owners can pay a fixed rate for the next five years with some comfort in a market. Where interest rates are constantly fluctuating. Therefore, should someone buying a home in the UAE consider a 5-year lock-in rather than a 3-year one?

According to Dhiren Gupta, Director at 4C Mortgage Consultancy, “Five-year fixed rates are comparatively more expensive than the standard 2- as well as 3-year fixed available in the market.” A few banks have continued to offer 5-year fixed rates that could range from 4.99 to 5.90 percent.

Locking in a rate is the only constant for mortgage applicants in the UAE. Also, they can always refinance again if interest rates do decline in, say, 2-3 years.

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