HOT OFF THE PRESS: Interest rate cuts set to increase affordability of UAE's small to mid-segment homes

When it comes to interest rates and mortgages, Dubai stands as a beacon for global affordability.

This week, our Chairman; Lewis Allsopp spoke to The National about how middle-income professionals could see their mortgage eligibility improve, and what we can expect.

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How interest rates will boost affordability

With the anticipated interest rate cuts by the US Federal Reserve and the UAE Central Bank, it is expected to have a significant impact on the UAE property market, making mortgages more affordable for buyers.

This shift is particularly relevant to small to mid-segment homes, where end-users and middle-income professionals are likely to benefit the most.

Lewis explained to The National that the expected reduction in interest rates will make borrowing more attractive, especially for first-time buyers. As interest rates drop, the cost of borrowing decreases which directly lowers monthly mortgage payments. For example, a 0.25% cut in rates on a 25-year mortgage of AED 2 million would save buyers roughly AED 300 per month. While this may seem modest, it could still be enough to entice buyers who are on the edge of affordability.

He also noted that middle-income professionals, especially those earning between AED 12,000 and AED 20,000 monthly, could see their mortgage eligibility improve. With property prices having risen in recent years, many of these potential buyers were previously priced out of the market. However, with lower interest rates, they may now qualify for larger loans and affordable properties such as studios, one-bedroom or two-bedroom apartments.

The impact of this on investor activity

Investors are also expected to take advantage of lower borrowing costs, making property investment more appealing.

Lewis also points out that lower rates may lead to more investor interest, as financing options become more favorable. Some investors might see this as an opportunity to diversify their portfolios by purchasing multiple properties, particularly in the mid-range segment. The ability to leverage lower-interest mortgages could allow them to invest in several properties, enhancing potential returns.

With this, buyers who were previously on the sidelines may become more active in their property search. This could drive demand for properties across the small to mid-segment range including apartments and townhouses. However, if the rate cuts lead to increased property prices, the actual impact on affordability could be limited as higher prices could offset the benefit of lower rates.

Opportunities for end-users and first-time buyers

For end-users, reduced rates directly lower monthly mortgage payments making homeownership more attainable. In addition, as rental prices continue to rise, more residents may find it financially easy to purchase a home instead of continuing to rent. This in turn predicts increased activity among first-time buyers, as well as current homeowners looking to upgrade to larger homes.

Plus, properties that offer opportunities for renovation or modernisation may attract more attention. With the savings from lower mortgage payments, buyers could invest in home improvements potentially increasing the property's resale value in the future.

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