Many people do not realise it, but mortgage rates in the UAE are largely determined by the interest rate policy of the United States. The reason? The UAE dirham has been pegged to the US dollar since 1997, at a fixed rate of 1 AED = 3.67 USD. This currency policy ensures stability in trade, oil prices, and foreign investment, but it also has consequences for loan and mortgage interest rates.
To maintain the stable exchange rate, the UAE Central Bank must align its monetary policy with that of the US Federal Reserve. This means that when the Fed raises or lowers interest rates, the UAE almost automatically follows suit. This keeps the supply and demand for the dirham in balance and prevents significant capital flows into or out of the country.
Too Low or Too High Interest Rates? Both Are Risky
If interest rates in the UAE were too low compared to the US, investors could borrow cheaply in dirhams, convert them to dollars, and invest elsewhere. This leads to capital flight. Conversely, if interest rates in the UAE become too high, a lot of ‘hot money’ flows in: short-term capital that quickly responds to interest rate differentials. This can lead to overheating in the real estate market or other asset classes.
Therefore, the UAE’s interest rate policy is closely tied to the US benchmark rate. Mortgage rates in the UAE are linked to EIBOR, the Emirates Interbank Offered Rate. This is the rate banks charge each other for loans and typically sits approximately 0.2% above the US central bank’s rate.
What Does This Mean for Your Mortgage?
For anyone buying a property in the UAE today and wondering what the mortgage rate will be in three years, the key focus should be on the US economy. As soon as the Fed adjusts its policy, EIBOR moves accordingly, and so does your mortgage rate.
This is particularly important for buyers of off-plan properties. The interest rate at the time of handover could be significantly different from today’s rate, depending on what the Fed does in the interim. The UAE will follow, in order to protect its currency peg.
Edward Clarke is a seasoned property expert with extensive experience in international real estate investment, with a particular focus on Dubai’s fast-growing property market. Drawing on both personal investment experience and years of client advisory work, he helps investors make informed, realistic decisions when purchasing apartments, villas or off-plan developments in Dubai. With a pragmatic mindset, a sharp focus on returns and a strong commitment to transparency, Edward is a trusted point of contact for anyone considering a property investment in Dubai.
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