Majority of home loan borrowers in Dubai in 2020 were end-users

Around 83 per cent of people in Dubai who took out a mortgage in 2020 planned to live in the property, according to a new report by mortgage consultancy Mortgage Finder.

Covid-19-related travel restrictions also meant UAE residents accounted for 97 per cent of mortgage transactions in 2020.

“We anticipate that as travel restrictions ease and Covid-19 vaccine programmes are rolled out globally, we will see non-resident borrowers re-enter the market in the final quarters of 2021,” Brendan Kennelly, senior mortgage consultant at Mortgage Finder, said. “Investors from the GCC and Europe, particularly the UK, are often keen to invest in the UAE.”

The low interest rate environment and the 5 per cent increase in the loan-to-value ratio by the Central Bank of the UAE in March 2020 made mortgages more achievable for new property buyers, as well as those looking to refinance their home loans.

Mortgage transactions for villas/townhouses and apartments recorded an almost even split, at 51 per cent and 49 per cent, respectively, the report found.

“This increase in popularity of villas/townhouses is something we see continuing throughout 2021. This will remain a lasting effect of the Covid-19 lockdown and movement restrictions, which saw the importance of having an outside area, like a garden or pool, become more prevalent,” Mr Kennelly added.

The areas in Dubai that registered the most mortgage transactions last year were Dubai Marina, Arabian Ranches, Palm Jumeirah, Dubai Hills Estate, Jumeirah Golf Estate and Jumeirah Village Circle. Yas Island, Saadiyat Island and Al Reem Island accounted for the most mortgage-backed transactions in Abu Dhabi, the report found.

Mortgage transactions in Dubai increased 40 per cent in the second half of 2020 following the lifting of Covid-19-related movement restrictions. The highest number of mortgage transactions were registered in October 2020, Mortgage Finder, which is part of the Property Finder Group, said.

Finance for completed properties accounted for 65 per cent of overall mortgage transactions, while the alignment between property prices and final valuations was significantly closer for completed properties compared with those purchased off-plan.

Only 16 per cent of valuations for completed properties came in below the property price, while 88 per cent of valuations for off-plan properties were below the purchase price.

“It is no surprise that properties purchased off-plan experienced a higher percentage of down-valuations. Buyers of off-plan properties commit to the purchase around two years prior to the final handover date,” Mr Kennelly said, adding that UAE property prices have been on a downward trend in recent years.

The report also found that the average mortgage amount was Dh1.6 million and the average mortgage term was 21 years. For completed properties, the average mortgage amount was Dh1.72m, while for off-plan properties (finance upon handover), it was Dh1.39m.

The Emirates Interbank Offered Rate declined by almost 80 per cent in 2020, Mortgage Finder said. This impacted mortgage interest rates. Rate cuts by the US Federal Reserve also helped reduce interest rates further in the UAE as the dirham is pegged to the greenback.

“Given where mortgage rates are currently sitting, and following many consultations with our banking partners, this is not an area we anticipate can fall much further in 2021,” Mr Kennelly said.

“However, we see potential for variable rate mortgages to become more competitive in comparison to some fixed-rate products.”