UAE Central Bank rate hike could impact mortgage loans, increase demand in high-end properties: expert

The Central Bank of the UAE (CBUAE) recent rate hikes, which is anchored to the US Federal Reserve’s interest on reserve balances (IORB), is likely to impact mortgage loans as well as the high-end Dubai property market, an expert told Arabian Business.

The CBUAE decided to raise the base rate applicable to the Overnight Deposit Facility (ODF) by 25 basis points, effective from Thursday, 17 March 2022, while maintaining the rate applicable to borrowing short-term liquidity through all standing credit facilities at 50 basis points above the base rate.

Sharing his thoughts on the move, the CEO of Allsopp & Allsopp, Lewis Allsopp, said: The UAE Central Bank’s move to raise rates will affect mortgage loans.”

He explained: “For example; for every AED 1 million borrowed, the increase in payment annually will be approximately AED 160 per 0.25 percent increase.

“If mortgage rates increase seven times this year, that’s an increase of  AED 1,160 per AED 1 million borrowed; an increase of AED 2,320 for an AED 2 million loan, so on and so forth. Luxury, high-end property buyers with loans upward of AED 7 million, will be most impacted, which in turn may impact the upper end of the Dubai property market.”

Lewis Allsopp, mortgage loan
Lewis Allsopp, the CEO of Allsopp & Allsopp

Albeit a marginal increase, given the overall sum of money being borrowed, the CBUAE move could impact the timing and demand of property purchase.

Allsopp added: “People who are sitting on the sidelines, or maybe thinking to purchase a property later in the year, may now come into the market sooner rather than later.

“I predict we will see an increase in demand across the market as buyers look to speed up their buying process to lock their mortgage product, and therefore their monthly payments, in place now, before they increase.”

Conversely, a number of experts have also spoken to Arabian Business about how the UAE Central Bank’s move to raise rates will “increase profitability for banks, lenders” and will help contain inflation.

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