Dubai: UAE consumers are still borrowing, but shifting preferences are emerging as higher interest rates, rising living costs and economic uncertainty push households to focus on affordability.
Bankers and financial analysts speaking said that demand for credit remains strong, particularly for property purchases and essential financing needs. However, borrowers are increasingly cautious about discretionary spending and are more hesitant to take on additional debt.
At its June 2026 meeting, the US Federal Reserve kept its benchmark interest rate unchanged at 3.50% to 3.75% for the fourth consecutive time. However, comments from Fed Chair Kevin Warsh signalled a more hawkish stance, suggesting the possibility of future rate hikes.
Following the US Federal Reserve’s announcement, the Central Bank of the United Arab Emirates mirrored the decision, keeping the Base Rate for the Overnight Deposit Facility (ODF) unchanged at 3.65%, in line with the UAE dirham’s peg to the US dollar.
Louay Joha said that geopolitical uncertainty and higher borrowing costs have led some consumers to adopt a more cautious approach to spending and credit decisions.
“Consumers are becoming more selective when it comes to major purchases, but overall demand remains intact,” he said.
He added that households are still taking on credit for vehicles, housing, education and lifestyle-related expenses, particularly among middle- and higher-income groups.
“Compared to the exceptionally strong post-pandemic recovery phase, demand has eased somewhat. However, overall credit demand remains healthy, especially in mortgages and auto financing, supported by continued population growth and steady economic activity,” he said.
Louay Joha also noted early signs of financial pressure among some lower-income households due to the higher interest-rate environment, although widespread debt stress remains limited.
Property remains the biggest driver of borrowing
Analysts said housing continues to be one of the strongest sources of credit demand in the UAE, as more residents view property ownership as a long-term financial commitment.
Louay Joha noted growing interest in asset-backed borrowing, particularly for real estate purchases and wealth-building opportunities.
Sandeep Jadwani said borrowing behaviour is gradually shifting away from discretionary spending and toward more secured forms of credit, especially those linked to long-term financial assets.
“UAE households are not reducing debt; they are becoming more selective,” he said. “Credit continues to grow, but demand is shifting away from discretionary auto purchases and higher-risk borrowers toward credit cards, personal loans and property-backed financing.”
Affordability becomes a bigger focus for banks
Sandeep Jadwani said banks are increasingly focusing on borrowers’ income stability, income growth and debt-servicing ratios as household expenses continue to rise.
“Since schooling, healthcare, etc. are increasing, this will impact the debt-service ratio (DSR),” he said.
The debt service ratio (DSR) measures the portion of a borrower’s income that goes toward repaying existing debt. Banks commonly use it to assess whether a customer can comfortably take on additional borrowing.
He said the key pressure point to monitor is affordability among middle-income expatriates, who are facing rising costs for rent, school fees and everyday living expenses. While Dubai’s education authorities have frozen tuition fee increases, overall schooling costs can still rise as students progress to higher grade levels.
In Abu Dhabi, residents currently have some relief, as the government has suspended rental increases until further notice, easing one of the major cost pressures on households.
Expatriates continue to support credit demand
Expatriates remain a major segment of borrowers in the UAE, analysts said, especially as more residents choose to build long-term lives in the country.
Louay Joha said younger professionals, skilled expatriates, entrepreneurs and higher-income earners are increasingly driving credit demand.
“The UAE’s ability to attract global talent continues to support lending activity,” he said.
Sandeep Jadwani added that the strongest borrowing appetite is currently coming from salaried individuals who are not yet heavily leveraged.
He added that employees in sectors such as healthcare, energy and technology continue to be viewed positively by banks, subject to standard credit assessments.
Buy now, pay later gains popularity
While traditional lending remains a key source of credit, younger consumers are increasingly shifting toward digital borrowing options.
Sandeep Jadwani said buy now, pay later (BNPL) services are expected to see stronger adoption compared with conventional personal loans.
He noted that younger borrowers are using these platforms as an alternative means of accessing short-term credit.
Interest rates provide stability for borrowers
Interest rate decisions by the Central Bank of the United Arab Emirates continue to play a key role in shaping borrowing costs across the country.
Louay Joha said that maintaining rate stability provides households and businesses with greater certainty when making financing decisions.
“Consumers are unlikely to see significant immediate changes in borrowing costs, allowing households and businesses to plan financing decisions with greater confidence,” he said.
Businesses continue to seek financing
Credit demand is not limited to households, with analysts noting that companies are still actively seeking financing to support expansion and investment plans.
Sandeep Jadwani said that both businesses and individuals with stable income profiles continue to have access to credit, while banks remain cautious in evaluating repayment capacity.
Samer Hasn added that borrowing activity has remained resilient despite regional uncertainty, with data from the Central Bank of the United Arab Emirates indicating continued growth in lending across the UAE.
UAE banks show resilience
Following the outbreak of the US–Israel–Iran conflict earlier this year, the Governor of the Central Bank of the United Arab Emirates, Khaled Mohamed Balama, assured that the UAE’s banking and financial sector continues to demonstrate “the highest levels of resilience and stability.”
Total assets in the UAE banking and financial system have now exceeded Dh5.42 trillion. In response to conflict-related operational and supply chain disruptions, the CBUAE introduced a Dh1 trillion asset-backed Financial Institution Resilience Package in March.
Senior officials at the United Banks Federation said the sector remains profitable and highly liquid despite ongoing regional tensions.
Analysts expect credit demand in the UAE to stay supported by continued population growth, sustained economic activity and strong property market demand.
However, the next phase of borrowing is expected to be driven less by rapid consumer spending and more by considerations of affordability, income stability, and more disciplined financial planning.
