UAE Borrowers Face Limited Rate Relief in 2026 as Fed Turns Cautious

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UAE borrowers prepare for limited rate relief in 2026. EIBOR drops slightly but Fed caution may slow mortgage cost declines.

UAE mortgage holders hoping for significantly cheaper borrowing costs in 2026 may need to temper expectations. While the Central Bank of the UAE cut its base rate by 25 basis points to 3.65% in December 2025, following the US Federal Reserve's move, mixed signals from the Fed suggest interest rate cuts could come slowly throughout the year, keeping monthly financing costs only slightly lower in the near term.

According to Gulf News, the December rate reduction "slightly reduced borrowing costs for banks and consumers," bringing down the Emirates Interbank Offered Rate (EIBOR) and easing pressure "a little—but not enough to dramatically change monthly repayments." Market analysts advise borrowers to "watch the US data, because that's what will drive borrowing costs in the UAE—slowly at first, and potentially more meaningfully later in 2026."

EIBOR Forecast Points to Stability Rather Than Sharp Declines

The 3-month EIBOR has declined steadily from its June 2023 peak of 5.36% to 3.72% in November 2025. For 2026, mortgage specialists Ricadi Mortgages forecast EIBOR will trade within a stable range of 3.45% to 3.95%, representing only modest further declines from current levels.

Current UAE mortgage rates in January 2026 generally range from 3.99% to 5.25% per annum, with some promotional fixed rates as low as 3.70% for eligible customers. Variable mortgage rates remain tied to EIBOR plus a fixed margin set by the lender, causing monthly repayments to fluctuate with market conditions. For a AED 2 million mortgage, moving from 5% to 4% would save approximately AED 1,150 per month.

The quarterly outlook suggests mild softening in Q1 2026 due to global rate cuts, followed by sideways movement in Q2 as banks maintain stable pricing. Lower interbank volatility is expected in Q3, with mortgage margins becoming more competitive in Q4 as banks push year-end volumes.

Federal Reserve Divisions Limit Scope for Aggressive Cuts

The US Federal Reserve's December 2025 rate cut revealed significant internal divisions that cast doubt on the pace of future reductions. The 0.25% cut, bringing the federal funds rate to 3.50%-3.75%, passed with a 9-3 vote—the most dissent in recent years. Two members voted for no cut while one advocated for a larger 0.50% reduction.

The Fed's updated "dot plot" projections showed highly divergent views among policymakers for 2026. The median forecast anticipates just one 0.25% rate cut during the year, but seven officials indicated they favor zero cuts while eight anticipate two or more cuts. This lack of consensus reflects competing concerns about persistent inflation, which remains at 2.7% versus the Fed's 2% target, and mixed labor market signals.

Major financial institutions have adjusted their forecasts accordingly. Goldman Sachs now expects two 25-basis-point cuts in June and September 2026, having pushed back its timeline. Emirates NBD Research anticipates the Fed will cut another 75 basis points in 2026, with regional banks following. S&P Global projects 50 basis points in cuts during the second half of the year, with the Central Bank of the UAE expected to mirror these moves.

Strategic Considerations for Mortgage Holders and Property Buyers

The slower-than-hoped rate environment is influencing buyer decisions in distinct ways. Some prospective buyers are adopting a wait-and-see approach, postponing purchases in anticipation of lower rates. Others are choosing to secure properties now to lock in current prices, particularly given steady economic growth and population inflows supporting the UAE property market.

Industry experts characterize 2026 as "the year of strategic mortgage planning" due to EIBOR stability creating clearer rate expectations and more predictable costs. Existing homeowners who locked in mortgages at higher rates during 2023-2024 now have a refinancing opportunity to reduce overall loan costs, particularly those on variable-rate products tied to EIBOR.

Louis Harding, CEO of betterhomes, noted that "buyer sentiment heading into 2026 shows a noticeable shift toward patience and clearer thinking. Buyers spend more time reviewing past sale prices, checking recent rental levels, and understanding service charges before committing."

Banking Sector Positioned for Stable Lending Growth

Despite the limited rate relief, the UAE banking sector enters 2026 from a position of strength. S&P Global Ratings reports that 90% of GCC bank ratings carry a stable outlook, with UAE banks benefiting from rapid non-oil economic expansion, strong population growth, and robust credit demand. The average Tier-1 capital ratio for GCC banks stands at 17%—among the strongest globally.

Retail lending is expected to remain a key growth driver in 2026, supported by digital transformation in loan processing and risk analysis that has accelerated approvals while controlling costs. As of August 2025, retail credit represented 27.5% of total UAE lending. S&P expects net interest margins for UAE banks to soften further, settling at 2.5%-2.7% over the longer term, though sector profitability should remain solid.

The property market outlook for 2026 suggests price appreciation will moderate to mid-single-digit levels of around 5-8% in Dubai—a marked slowdown from the 12-22% annual growth during 2024-2025. Dubai is expected to see 108,000 to 120,000 new residential units delivered during the year, helping balance supply and demand dynamics.