UAE interest rates set to rise but did borrowing get easier when they were low?

The UAE Central Bank increased its interest rates by 25 basis points on Wednesday, following the US Federal Reserve's first rate hike since 2023. Lower interest rates had been expected as borrowing costs typically become cheaper when central banks cut rates. However, a Credit Sentiment Survey from the bank indicates the borrowing experience has been more complicated than expected.

Lending appetite fell to minus 3.2 percentage points over the first quarter, driven by banks' lower risk tolerance, a less favorable economic outlook, and weaker creditworthiness of borrowers. Notably, lending to small and medium-sized enterprises was particularly weak.

As a result, mortgage rates in the UAE have remained relatively flat over the past year, with one UAE-based mortgage broker reporting the lowest fixed three-year rate at 3.89 percent, down slightly from 3.99 percent a year ago. Major banks describe the overall cost as broadly similar to a year ago. However, the process of obtaining a mortgage has become more streamlined and efficient for qualified borrowers.

Personal lending and credit card applications remain more challenging, as they are unsecured products that require a stable borrowing history and an assessment of the borrower's salary and employer profile. The borrowing process has become more cautious, with banks requiring additional documentation and personal guarantees, especially for self-employed borrowers and those in industries affected by regional conflicts such as aviation, hospitality, real estate, travel, tourism, oil and gas, and construction.

Experts suggest that borrowers with stable incomes and strong debt-to-income ratios, particularly salaried employees at recognized employers, will continue to secure the most favorable terms. In contrast, self-employed individuals, newer residents, and those with irregular income or existing short-term debt face more stringent requirements and a more cumbersome application process.