Why Are UAE Mortgage Rates Higher Than in the UK and Europe?

Mortgage seekers in the UAE often wonder why mortgage rates here seem higher than in the UK or Europe. The answer lies in several interconnected factors: the local economic environment, the Emirates Interbank Offered Rate (EIBOR), global inflation trends, and how UAE banks manage risk. Understanding why EIBOR is increasing is especially important because it directly shapes interest rates and mortgages in the UAE.

In this blog, we’ll explore:

• •What EIBOR is and how it affects mortgages.
  
  
• •The main reasons why EIBOR is increasing in 2025.
  
  
• •How UAE mortgage rates compare to the UK and Europe.
  
  
• •What homebuyers and investors can do to manage higher borrowing costs.
  
  

What Is EIBOR and Why Does It Matter?

EIBOR (Emirates Interbank Offered Rate) is the benchmark interest rate at which UAE banks lend to each other. It is set daily and published by the UAE Central Bank.

When you apply for a mortgage in the UAE, most lenders price their offers as a fixed margin plus EIBOR. For example, your mortgage may be structured as EIBOR + 1.75%. This means if EIBOR rises, your repayments increase accordingly.

This makes EIBOR the backbone of interest rates and mortgages in the UAE. Any upward movement impacts borrowing costs for both residents and investors.

Why EIBOR Is Increasing in 2025

One of the key questions homebuyers ask today is why EIBOR is increasing. Several global and local factors are driving this rise:

1. US Federal Reserve Policy

The UAE dirham is pegged to the US dollar, which means UAE monetary policy is closely aligned with the US Federal Reserve. When the Fed raises interest rates to control inflation, the UAE Central Bank follows. This directly raises EIBOR.

2. Global Inflationary Pressures

Inflation remains a concern worldwide, with higher food and energy prices affecting economies. Banks raise interbank lending rates to offset risks, pushing EIBOR upward.

3. Increased Lending Demand in the UAE

Dubai and Abu Dhabi property markets are booming, with record sales in 2024 and 2025. More demand for mortgages increases pressure on lending institutions, another reason why EIBOR is increasing.

4. Liquidity and Risk Premiums

Banks factor in risk when lending to one another. In uncertain times, they raise the rates to protect themselves. This leads to higher EIBOR and consequently higher interest rates and mortgages.

Comparing UAE Mortgage Rates with the UK and Europe

Homebuyers often ask why UAE rates are higher than in the UK or Europe. Here are some of the main reasons:

• •Different Monetary Policies: While the European Central Bank (ECB) may cut rates to stimulate growth, the UAE follows US monetary policy due to the currency peg.
  
  
• •Market Size and Risk: UAE banks operate in a smaller, more concentrated market. They price risk more conservatively compared to large European markets.
  
  
• •Shorter Lending History: Europe has a longer history of mortgage products, which often leads to more competitive pricing. The UAE mortgage market is still maturing.
  
  
• •Property Market Dynamics: With Dubai property values rising sharply, lenders tend to be cautious and keep margins higher.
  
  

In short, the combination of the dollar peg, rising EIBOR, and higher bank risk premiums explains why EIBOR is increasing and why UAE interest rates and mortgages are above European averages.

The Impact of Higher Mortgage Rates on Buyers

So what does this mean for homebuyers and investors? Rising EIBOR affects:

• •Monthly Repayments – Higher EIBOR means your mortgage payments increase unless you are on a fixed-rate plan.
  
  
• •Affordability – Some buyers may qualify for smaller loans because their debt-to-income ratio rises with higher interest costs.
  
  
• •Investment Returns – For investors buying property to rent out, higher mortgage costs may reduce rental yield margins.
  
  

This is why understanding interest rates and mortgages is crucial when planning property purchases in Dubai or Abu Dhabi.

Fixed vs. Variable: Choosing the Right Mortgage Strategy

With EIBOR on the rise, buyers often debate whether to choose fixed or variable mortgage rates.

• •Fixed Rates: Protect you from short-term EIBOR increases. Useful if you want predictable repayments.
  
  
• •Variable Rates (EIBOR-linked): Start lower but rise with EIBOR. Good if you believe EIBOR may fall in the medium term.
  
  

Many buyers today are opting for fixed rates to protect themselves, given that why EIBOR is increasing remains tied to global inflation and US Fed policy.

Table: UAE Mortgage Rates vs. UK and Europe

Factor	UAE	UK	Europe
Benchmark Rate	EIBOR (pegged to USD)	Bank of England Base Rate	ECB Refinancing Rate
Typical Mortgage Type	EIBOR + Margin (variable)	Tracker, Fixed, Variable	Fixed, Variable
Average 2025 Rate	4% – 6%	3% – 4%	2% – 3.5%
Market Drivers	US Fed policy, local liquidity	Domestic inflation, BoE policy	Eurozone inflation, ECB policy

This comparison highlights how the UAE’s link to the dollar means it cannot independently adjust rates like Europe or the UK, keeping interest rates and mortgages more closely tied to EIBOR.

What Can You Do to Manage Higher Rates?

If you’re worried about rising costs, here are practical steps:

1. Consider Refinancing – If you’re on a high variable rate, explore remortgage options to lock in a lower fixed rate.
   
   
2. Increase Your Down Payment – Lower borrowing reduces the impact of rising interest rates.
   
   
3. Work With a Mortgage Broker – Brokers compare dozens of lenders and can find deals that offset rising EIBOR margins.
   
   
4. Budget for Flexibility – Always leave room in your finances for potential repayment increases.
   
   
5. Stay Informed – Track why EIBOR is increasing and monitor how global rate changes may affect you.
   
   

EIBOR is the heartbeat of UAE mortgages, and knowing why EIBOR is increasing is essential for every buyer or investor. While it may seem frustrating that UAE rates are higher than in the UK or Europe, the reasons lie in the dollar peg, inflationary pressures, and how banks manage risk.

If you’re planning to buy or refinance, understanding the link between interest rates and mortgages can help you make smarter financial decisions. Choosing the right mortgage strategy—whether fixed or variable—can protect you from the worst effects of rising EIBOR.

At Mortgage Finder, our team helps clients navigate rising mortgage rates, compare offers, and lock in the most competitive terms in the UAE market.

 Concerned about rising EIBOR? Contact Mortgage Finder today for expert advice on your mortgage options.