Another rate hike by the US Federal Reserve was made on Wednesday 27th July, followed soon after by the UAE Central Bank for a domestic rate hike. Was it a surprise? In short, no.
US inflation hit a 40-year record in June, with consumer prices up 9.1% in the past 12 months. With multiple rate hikes already this year, the latest 75 basis points increase is no surprise. The second consecutive 75-basis-point rate hike supported the Federal Reserve’s resolute commitment to containing inflation and accelerating its rise.
But what does this mean for everyday homebuyers and investors in the UAE? We can look at this from two perspectives. First, the direct impact on mortgages. Second, the indirect impact on outstanding debt and how this affects personal budgets and affordability. We have been through a period of relatively low interest rates. This has led many buyers to perceive the current rates to be astronomically high when in fact they are not.
Pre-corona, the average fixed rate mortgage rate was around 4%. At the height of the pandemic, rates he dropped to less than 3%. However, according to Holo.ae, his latest Fed rate hike is expected to bring him just under 4% over a three-year fixed rate. Fixed rate mortgages are getting harder to come by as banks are proceeding cautiously, but knowing they are there and fixed for the foreseeable future payments, Buyers and investors can better plan their finances. A plan to end the worry of having to pay thousands of extra dirhams in mortgage payments that you hardly know when they will come back.
While the cost of paying a mortgage may seem steep to those currently actively looking for a home, another option is to stay in the rental market. It’s a market that continues to rise, up 20% year-over-year. So while it can be a tough pill to swallow, buying it now and keeping it for years means at least paying for your property and not someone else’s.
Looking at the latter effect, rising interest rates are felt across personal outstanding debt. Rising car loan repayments, credit card debt, and other liabilities are also impacting personal disposable income and affordability at the time of purchase. There is evidence that buyers have adjusted their budgets in recent months and are unwilling to meet the demands of sellers in the vacation home market. Villa prices have increased by 20% year-on-year, so now villa activity is calm and prices are stable. This has drawn a lot of attention to apartments that haven’t experienced steep price increases like vacation homes, and buyers are making trade-off decisions. Need an extra bedroom? Do they need a backyard?
Looking specifically at the off-plan market, inquiries and transactions remain high as this model offers investors and end-users a buying opportunity without the additional pressure of the current rate hikes. For example, for units delivered in 2024/2025, interest rates are expected to be relatively low, so buyers looking to mortgage post-delivery amounts may be in a much better position to do so. There is a nature.
Sarah Hewerdine is Head of Marketing for houza.com.
https://gulfbusiness.com/will-the-latest-interest-hike-spike-your-dream-of-buying-a-home/ Does the recent surge of interest fuel your dream of buying a home?