Home owners feel the weight of rising rates

THESE ARE ALREADY AT 10-YEAR HIGHS AND WILL BE INCHING UP

Property buyers in the UAE who have taken out mortgages can definitely share one sentiment with President Donald Trump — that the US Federal Reserve should stop hiking interest rates frequently.

Because each time the Fed does so, these property owners are staring at the possibility of higher payments on their mortgage exposures.

And right now, mortgage rates in the UAE are already at a 10-year high, with the average at 5-5.75 per cent and heading into the 6 per cent and over range with the next Fed increase, widely expected to happen next month.

“The Eibor (Emirates interbank offered rate) is already at a 10-year high of 3.49 per cent, which is what local mortgage rates are set around,” said Sameer Lakhani, Managing Director at Global Capital Partners, the real estate consultancy. “By extension, this means that mortgage rates too are at a decade’s high.”

The Eibor — which is the rate at which inter-bank transactions in the UAE are charged — was at 2.45 per cent in October 2009 and reached its lowest point in the last 10 years in October 2014, when it was 1.01 per cent.

Higher rates have already started to bite into the budgets of homeowners here. Banks typically give a two-year fixed rate, and many of those who took out mortgages in 2016 will be shifting to a floating — i.e., higher — rate mechanism. And for those just taking out a mortgage on their newly acquired home, they will find that banks will less generous handing out extended fixed-rate terms.

In short, those monthly mortgage payments are going up, if they haven’t already.

The number of mortgagebased transactions as a percentage of overall property sales in Dubai has been consistently above the 70 per cent mark in recent months. That compares favourably with the mid-50 per cent to low 60-per cent range that was there as recently as in 2016 and early 2017.

Not just that, average property deals in the city are trending below Dh1.5 million, which suggests that more end-user buying activity is taking place. This is the activity that could take a hit when interest/mortgage rates are on the rise.

Some local banks are already making adjustments in their offers to offset client concerns, according to Dhiren Gupta, Managing Director of 4C mortgage consultancy. “They have kept the bank margins at lower levels, which gives property buyers the incentive to lock in the base rate at a much lower rate.”

Whatever be the mortgage rate levels, Lakhani says there is no need to let go of the optimism over the growing demand for ready homes, which is where most of the mortgages are taken out. “Transactions in the ready property market are poised to end the year higher than in 2017. This obviously means that there is some traction in the secondary market,” Lakhani said.