Introduction The unprecedented rise in mortgage rates globally and in the UAE in 2022 left many homeowners searching for solutions to mitigate the financial impact. As variable rates soared, refinancing emerged as a popular strategy to secure more favourable terms and lock in lower rates. This article delves into the factors behind the mortgage rate increases and explores the refinancing trend that has swept the UAE real estate market in response.
A Record Year for UAE Real Estate Transactions In 2022, the UAE and Dubai real estate markets experienced significant growth, with Dubai recording 90,881 transactions - a 78% increase from 2021. This provided the market with unmatched liquidity, making it a great year for homeowners. However, mortgage holders with variable rates have had to face the uphill battle of raising interest rates. Are you facing something similar? Looking for a mortgage – Apply Here!
Understanding the Cause: EIBOR Rate Hikes The UAE Central Bank raised its EIBOR (UAE Interbank rate) by 4.5% since 2022 to combat rising inflation, marking the biggest rate hike in UAE history. As a result, EIBOR-driven increases in UAE mortgage rates exceeded 4.5% which has had the following effects:
Variable-rate mortgage holders experienced rate increases from 2-3% annually to 6- 9%, with some paying more than 10% annually.
Mortgage holders with soon-to-be variable rates will face higher payouts, potentially causing financial strain in households with high DSRs (debt stress ratios).
Mortgage experts expect that homeowners with variable-rate mortgages will pay at least an additional AED 4,000 a month for every AED 1 million of mortgages in Q1 2023 compared to the same period last year.
Homeowners' Response: The Refinancing Trend
Homeowners in the UAE are aggressively refinancing their mortgages, and according to Lenddoo Mortgages 3 out of 4 mortgage variable rates holders are currently refinancing into lower, fixed mortgages. Just look at the top search terms on Google in Q4 2022, the most searched mortgage-related phrases were "UAE remortgage," "UAE remortgage rates," and "UAE mortgage rates." It’s likely that this trend will continue throughout 2023 as global inflation continues to rear its ugly head and shows no signs of slowing down.
The good news is that you can take advantage of available bank offers for refinancing which allows you to lock in your mortgage rate for a period of three to five years, while simultaneously lowering the rate. This will enable you transition from a variable rate between 6% and 9% (based on the terms of the existing mortgage to a three-year fixed rate as low as 4.99%.
This refinancing approach provides the following benefits:
Secure a fixed rate for a period long enough to allow rates to stabilize.
Reduce monthly payments, effectively generating monthly savings of at least 3.5K AED for every million you have in mortgages.
How to Refinance Your Mortgage in the UAE
The UAE banking industry continues to offer affordable fixed mortgage deals for homeowners looking to refinance. As of January 2023, several banks are offering 3-year fixed-rate mortgages with rates as low as 4.99%, significantly lower than any variable rate mortgage. Due to their substantial retail deposits, banks can provide mortgages with interest rates near or below the 3M EIBOR mark.
FAQ’s
Is it possible to refinance a mortgage in Dubai and the UAE?
Yes, refinancing a mortgage in Dubai and the UAE is possible. The UAE Central Bank permits other banks to take over your existing mortgage at more favourable rates. Many homeowners typically refinance their mortgages every 3 to 4 years to take advantage of better market offers and savings opportunities.
What is the basic principle for refinancing a mortgage?
The primary consideration when refinancing a mortgage is to compare your current mortgage rate with the best available rate in the market. It can also be helpful to predict potential variable rates. If the anticipated savings outweigh the refinancing fees, then refinancing your mortgage is a sensible decision.
Is it advisable to refinance a loan?
Refinancing your mortgage is a good idea if it leads to savings on your monthly payments.
Should I refinance my variable rate mortgage in the UAE?
Yes, you should consider refinancing your mortgage as soon as possible. In an environment with rising rates, your monthly mortgage payments will increase over time. Having a variable rate leaves you vulnerable to fluctuations in mortgage rates, which are influenced by the UAE Central Bank.
When is the right time to refinance my UAE mortgage?
If your mortgage rate is currently variable or will become variable in the coming months, it's the right time to refinance. As of January 2023, 3-year fixed rates are as low as 4.99%. Opting for a fixed rate now will minimize the downside for the next three years.
Is there a risk if my UAE mortgage rate will become variable soon?
Yes, you are exposed to rate fluctuations if your mortgage rate is or will be variable.
Do I need to wait for my rate to become variable before refinancing?
No, you don't need to wait until your rate becomes variable to refinance. As rates continue to rise, it's better to refinance sooner rather than later to secure and "lock in" a lower rate today. Apply for a mortgage from our partners here!
In summary, before buying or renting a property in the UAE, it is imperative to do your research and not take anything at face value. If you fail to conduct due diligence, you could face some uncomfortable consequences that could easily have been avoided.
If you need any assistance or recommendations, drop us a note here: info@halaproperty.com or visit the contact us page.
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