How UAE Interest Rate Increases Affect Mortgages, Loans and Savings

SPEAKER_1 (0:00)

The Morning Drive at Mira Business FM. Wherever you are with us, or wherever you're joining us from, feel free to drop any questions in the comments, and please hit like and subscribe. Thursday morning, 11 o'clock, James Thomas is with me, Personal Finance News. Nice to see you.

James Thomas (0:17)

And you, good morning.

SPEAKER_1 (0:18)

Good morning. Last week, we were, I feel like you were almost counseling. It was like couples counseling, wasn't it? It's not like that this week.

James Thomas (0:27)

No.

SPEAKER_1 (0:28)

The psychological weight of money in relationships last week, this time, it's just four main stories to consider.

James Thomas (0:35)

Yeah. And there's quite a lot. And I thought we'd look at some news items that...

SPEAKER_1 (0:40)

Yeah, well, we just had an interest rate rise.

James Thomas (0:42)

Well, exactly.

SPEAKER_1 (0:43)

In the United States. So, if it's what, 25 basis points, so 0.25% increase. How does that affect mortgages and personal loans here, James?

James Thomas (0:56)

Well, sadly, they're going to go up.

SPEAKER_1 (0:58)

I know.

James Thomas (0:58)

It's the very simple answer to that. If you're on a fixed deal, of course you're okay. But obviously, when they come to an end, you'll be on the standard variable rate, we're talking about mortgages, but obviously, credit cards and personal, new personal loans, yeah, the banks are generally very quick to implement increases.

SPEAKER_1 (1:19)

I was going to say, when the Fed went up 25 basis points, 0.25%, quarter of a percent, Central Bank of the UAE is up from 3.65% to 3.9%, so that's structural, the Durham is obviously.

James Thomas (1:33)

Everything is based around that. So any mortgages, credit cards, well, credit cards are on a different level anyway, but generally, there is some link to that, so they would more than likely increase, and as will personal loans, car finance, all of those rates will be increased.

SPEAKER_1 (1:53)

Now, so if you've got a variable rate mortgage, for example, how much of a budget squeeze should you anticipate when it, you know, when it kicks in, when it comes up for review, whatever it is, and I suppose there's, I wouldn't say a rush, but you should lock in a fixed rate if you can.

James Thomas (2:13)

Yeah, to answer the first part, well, it obviously depends on how much you owe as to how much that 0.25 will affect your monthly repayment, but as to lock in, yes, I'll always caveat that with making sure you check the fees and the terms and conditions. Are there any exit penalties to leave your current arrangement, and what are the charges to set up the new one? Because certainly we've had that with clients where, they thankfully have got smaller loan amounts, and actually the fees would take a good couple of years for the benefit of moving to really kick in. So it's then doing, it's that, do we want to go through the hassle of application and having to get valuations and submit reams of documentation for what is actually a relatively small saving, that if circumstances change going forward, then we could find those interest rates dropping and the standard variable rate drop, and therefore the cost of your mortgage drop anyway.

So it is always a balance. Now if you've got a larger sum, a sum that you've borrowed for a longer period of time, then it may well be worthwhile doing, but it's very, again, don't just leap straight in, as always. Yeah, take advice, the usual story really.

SPEAKER_1 (3:34)

So borrowing is more expensive.

James Thomas (3:36)

So borrowing is more expensive.

SPEAKER_1 (3:37)

But what that means is that savers get that little bit more.

James Thomas (3:41)

This is the flip side of it, absolutely. Now, again, sadly, it's often the case that the full 25 basis points, quarter of a percent, is applied immediately to borrowers. It can take a little bit longer before it's applied to savers. Shock horror, I know, but just to be aware of that, you may be thinking, great, that deposit I've accumulated is suddenly now earning a quarter of a percent more.

It may take a little while for it to kick in. And whether you get the full quarter of a percent applied, just to be, and again, just to make sure that you check those things, because you may find that other banks are offering a better rate, and just do your research, make sure you're getting the best rate.

SPEAKER_1 (4:28)

So the full quarter of a percent may not be applied in some cases?

James Thomas (4:33)

No.

SPEAKER_1 (4:33)

Okay, so read the fine point.