Mortgage market updates – October 2020

Mortgage rates have continued to fall throughout 2020 and with the announcement in September from the US Federal Reserve that it will be keeping interest rates near zero, we look at the possible impact on mortgages for new and current borrowers in the UAE. We will also provide an update on the current market leading mortgage rates and products available.

Fed rate freeze

In September, the US Fed confirmed it would be keeping interest rates at near zero, with some members suggesting this could be the case until at least 2023. With the UAE dirham pegged to the US dollar, this announcement will have some impact on mortgage borrowers in the UAE.

Mortgage interest rates in the UAE have fallen steadily over the past year, from 3.75% being the market leading fixed rate in 2019 falling to 2.69% in Q3 2020, as banks across the UAE offer more competitive rates and products. This is a trend that we predict will continue for the foreseeable future given the Fed announcement, which is great news, specifically for new buyers who are able to take advantage of the lower fixed rate products now available on the market.

For existing mortgage holders whose fixed rate period has ended or is due to end soon, we would hope that you will also see some benefit from the recent announcement through lower reversion rates. However, it is worth noting this will only apply where your mortgage product does not have a floor rate. Considering where mortgage rates are currently sitting, for some existing mortgage holders it could be worth investigating buyout (refinance) options to reduce your mortgage repayments, but this is not without associated costs so you will need to weigh up whether this would be worth it.

Current mortgage rates

Prevailing mortgage rates are now sitting at 2.69% fixed for three years or 2.99% fixed for five years. For those interested in a shorter term fixed rate, it is possible to get a one-year fix for as low as 2.49%.

Options for variable mortgage products are also very competitive, with the lowest at 2.21% and some banks even offering products with no floor rate, which is a great option to consider should rates continue to fall or at least remain steady, as anticipated.

Banks’ appetites for lending

Coronavirus had a definite impact on the banking sector and affected the banks’ appetite for lending earlier in the year. The good news is there has been a clear improvement as stricter lockdown restrictions lifted and most businesses have been able to resume operations. Banks are slowly becoming more flexible again with who they will lend to and most have now increased their loan-to-value ratios up to 80% for expat first-time-buyers and 85% for UAE nationals, following the UAE Central Bank announcement back in March.

Key takeaways

The US Fed announcement is likely to have an impact on mortgages in the UAE, whether this is through a further reduction in interest rates or at the very least rates will remain at current levels, which are already at historic lows.

For new buyers, now is a great time to consider purchasing with a mortgage to take advantage of current rates and favorable property prices. For existing mortgage holders, a buyout (refinance) could be something to consider where you are on a higher than market interest / reversion rate, with a less competitive floor rate. There are also options to potentially release some cash depending on the loan to value of your current mortgage.

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