UAE real estate: Fed rate cut spells good news for Dubai homebuyers as mortgage rates set to drop

The US Federal Reserve’s decision to cut interest rates by 0.5 percent is expected to have a positive ripple effect on the UAE property market as local banks are expected to lower mortgage rates in the coming days and weeks, according to experts.

For prospective UAE homebuyers, the Fed’s first rate reduction since 2020 could translate into significant savings and increased affordability as mortgage rates drop. Those looking to purchase property or refinance existing mortgages may soon be able to secure more attractive borrowing rates from lenders.

“We are expecting UAE banks to announce reduced rates within the next week. Two banks have already dropped their rates, and others will follow soon,” said Sameer Vaya, founder and managing director at Mortgage Simplified UAE.

To illustrate the potential impact, consider a salaried buyer purchasing an AED 2 million property with a 20 percent down payment. Assuming a fixed interest rate of 4.40 percent for 3 years on a 25-year mortgage, their current monthly repayment would be around AED 9,342, according to an example from the mortgage experts at Holo.

However, if rates were to drop to 3.90 percent in line with the Fed’s cut, the same mortgage would cost only AED 8,869 per month – a savings of AED 473 each month or over AED 5,600 per year.

Vaya believes it is an opportune time for end-users to consider a mortgage, especially with rents remaining high.

“With no sign of property prices dropping, plus the increasing rents, the reduction in interest rates comes as positive news,” he said.

“For most end-users, the monthly installment comes equal to or less than their monthly rent.”

The lower rates could also spur increased investor interest.

“For investors, the same principal applies, with an increase in rent and decrease in installment, bank payments will easily be covered from their rental income,” Vaya added.

For those looking to take advantage, Vaya advises against waiting too long. “Buyers may not have to wait for too long – approximately a week and we may have new reduced offers. Rather than contacting various banks themselves, speak to a mortgage consultant who can help identify the best product for their profile and requirements.”

He noted that sales contracts typically have a 45-60 day validity period, providing ample time to complete the mortgage and purchase process under the new, lower rates.

Beyond just lowering monthly payments, the rate cut could have broader implications for the UAE real estate market. Vaya foresees a “domino effect” as improved affordability drives up buyer demand, particularly from end-users looking to get onto the property ladder and lock in attractive rates.

“Lower interest rates mean lower monthly payments, more affordability, and more buyers,” he said, adding that inquiries from non-resident buyers have also increased lately.

With a flurry of tourist arrivals and events expected towards the year-end, Vaya believes the combination of lower rates and developers looking to maximize annual sales could further boost the market in the coming months.

“Let’s not forget we are entering the last quarter of the year,” he said.

“Not only banks but even real estate companies and developers would want to maximise their numbers for the year. Hence, we might see offers from both banks and developers. Buyers should take advantage and benefit from the various offers, plus the overall positive impact on real estate.”

Source: Arabian Business