Saudi Mortgage Market Outlook 2026: Rate Cuts, Supply Growth, and Demand Recovery

Saudi Mortgage Market Outlook: 2026 Assessment

The Saudi mortgage market enters 2026 in a transitional phase. After years of rapid expansion that pushed total outstanding real estate loans to SAR 951.3 billion (USD 253.46 billion) by end of 2025 — a 7.7 percent rise during the year, up from SAR 922.2 billion at end of Q1 and SAR 932.8 billion at end of Q2 — the market experienced a significant moderation in new originations. New residential mortgage contracts fell 11 percent year-on-year to 108,795 contracts valued at SAR 80.42 billion (USD 21.43 billion), down from SAR 91.1 billion (USD 24.28 billion) in 2024. This deceleration, occurring despite SAMA’s six consecutive rate cuts totalling 100 basis points to bring the repo rate to 4.25 percent, reflects market recalibration rather than fundamental demand contraction.

The deceleration became particularly pronounced in the second half of 2025. November saw new bank financing drop to SAR 4.47 billion — the lowest monthly value of the year. December registered SAR 5.55 billion versus SAR 11.94 billion in December 2024, a decline exceeding 53.5 percent. This monthly trajectory suggests that the factors suppressing origination — elevated property prices, borrower caution in a recalibrating market, and DTI constraints limiting qualifying amounts — intensified through the year rather than stabilising.

Demand Recovery Expectations: The Jadwa Investment Assessment

Jadwa Investment’s analysis expects demand for mortgage financing to gradually improve during 2026, supported by two primary catalysts: declining interest rates and greater availability of housing options. This assessment reflects a constructive view that the 2025 origination decline was cyclical rather than structural, and that the underlying demand fundamentals — population growth, household formation, the gap between 65.4 percent homeownership and the 70 percent target, and the cultural preference for ownership — remain intact.

The rate environment provides the first catalyst. SAMA’s six consecutive rate cuts between August 2024 and December 2025 brought the repo rate from 5.50 percent to 4.25 percent — the lowest level in over three years. Since December 2025, SAMA has maintained rates unchanged, providing a stable rate platform for borrower and lender pricing decisions. This stability, after a period of progressive easing, creates a “stable floor” psychology: potential buyers who delayed purchases while rates were declining may now enter the market with confidence that the current rate level represents a medium-term equilibrium rather than a waypoint in an ongoing decline.

The cumulative 100 basis-point reduction translates to meaningful affordability improvement. For a SAR 500,000 mortgage over 20 years, the rate reduction decreases total financing cost by approximately SAR 50,000 to SAR 60,000 over the contract’s life and reduces monthly payments by approximately SAR 200 to SAR 300. For Sakani beneficiaries with partial REDF coverage, the unsubsidised portion of their financing benefits directly from this reduction. For private-market borrowers without programme subsidies, the rate cuts represent the primary source of affordability improvement — making the 4.25 percent rate level a significant positive for demand recovery.

Further SAMA rate cuts depend entirely on Federal Reserve policy, which SAMA follows due to the SAR-USD peg at 3.75 riyals per dollar. US inflation dynamics, employment data, and broader economic conditions — factors entirely exogenous to Saudi housing market fundamentals — will determine whether additional easing materialises. This peg-driven dependency means the Saudi mortgage market could face a rate reversal if US conditions warrant Fed tightening, regardless of domestic housing policy priorities.

Housing Supply Expansion: The Second Catalyst

Greater availability of housing options provides the second demand catalyst identified by Jadwa Investment. The supply pipeline for 2026 and beyond is the most robust in the housing programme’s history, with multiple delivery channels operating simultaneously.

NHC’s pipeline continues expanding with 134,000 new units launched in 2025 and SAR 60 billion in investment opportunities announced for 2026. The NHC’s commitment to delivering 600,000 residential units by 2030, backed by SAR 220 billion in government allocation, establishes the institutional delivery backbone. With 119 projects under construction providing more than 155,000 units in modern models, the transition from pipeline to delivered stock is underway — though the pace of construction completion and unit handover will determine how much of this pipeline converts to market-available supply within the 2026 timeframe.

ROSHN’s communities are advancing through construction phases, with the portfolio representing approximately 155,880 planned units across seven communities: SEDRA (30,000 homes in north Riyadh), WAREFA (2,380 units in eastern Riyadh), ALAROUS (18,000 homes in Jeddah with first deliveries expected), MARAFY (52,000 units in northern Jeddah), ALMANAR (33,000 homes in Makkah), ALFULWA (18,000 homes in the Eastern Province), and ALDANAH (2,500 units in Dhahran). First home deliveries at ALAROUS, where over 70 percent of Phase 1 infrastructure is complete, would represent ROSHN’s first significant contribution to the occupied housing stock.

The USD 43 billion five-year housing construction plan launched by the Ministry of Municipal and Rural Affairs targets 240,000 units, adding government-commissioned capacity to the NHC and ROSHN pipelines. Agreements with Chinese developers for construction of 100,000 homes in 2026 introduce international construction capacity that could accelerate delivery timelines. The residential construction market, sized at USD 19.59 billion in 2025 and projected to reach USD 25.21 billion by 2030 at a 5.17 percent compound annual growth rate, provides the industrial base for this expansion.

If this supply materialises at price points accessible to Sakani-eligible families — particularly below the SAR 800,000 threshold where the Dhamanat guarantee enables 5 percent down payments — mortgage origination should respond positively as families find available units that match their financing capacity. The critical question is timing: how quickly does pipeline supply convert to purchasable inventory that absorbs the demand currently constrained by price-accessibility gaps?

Residential Price Dynamics: The Affordability Recalibration

The residential sector price index fell 2.24 percent during the year to Q4 2025, contrasting with the 5.12 percent year-on-year increase registered in Q1 2025. This reversal from appreciation to depreciation represents a meaningful shift in market dynamics — one that could improve affordability and stimulate demand from middle-income families who were priced out during the rapid appreciation phase.

In Riyadh, where the rent freeze stabilised rental costs and residential prices had climbed 10.6 percent year-on-year in Q2 2025, transaction volumes fell 31 percent year-on-year in H1 2025 as the market recalibrated. Riyadh apartment prices had surged 82 percent since 2019 according to Knight Frank, creating a significant affordability challenge for first-time buyers. The transaction volume decline and price moderation suggest the market is undergoing a correction that, while painful for recent buyers, could establish a more sustainable price level for the next wave of demand.

Outside Riyadh, price dynamics vary. Jeddah experienced 3-6 percent year-on-year rental growth in 2026, indicating continued demand pressure in the Kingdom’s second-largest city. The Eastern Province, with ROSHN developments in Dhahran and AlHafouf advancing, may see localised price effects as new supply enters specific submarkets. The heterogeneity of price dynamics across regions underscores the importance of geographic specificity in mortgage market analysis — national averages mask divergent local conditions that affect borrower decisions and lender risk assessments.

If price moderation continues through 2026, the interaction with lower interest rates could create a favourable convergence for mortgage demand: lower property prices reduce the financing amount required, while lower rates reduce the cost per unit of financing. This dual improvement in affordability — from both the price and rate sides — could catalyse the demand recovery that Jadwa Investment anticipates, particularly for families who deferred purchases during the 2024-2025 period of rapidly rising prices.

Secondary Market Infrastructure: Sustaining Lending Capacity

The SRC’s RMBS programme and sukuk issuance provide ongoing liquidity to the banking system, ensuring that bank balance sheet constraints do not limit mortgage origination. Saudi Arabia’s first RMBS transaction, completed between August and October 2025 following SAMA’s no-objection approval, established the legal and structural precedents for a regular securitisation programme. SRC’s refinancing deals have exceeded SAR 12 billion with 85 percent growth, and the five-year target of SAR 75 billion in mortgage refinancing would represent approximately 8 percent of the current mortgage market.

SRC’s funding infrastructure supports continued market growth through multiple channels. The completed SAR 20 billion guaranteed local sukuk programme provides SAR-denominated funding matched to the domestic mortgage portfolio. The USD 5 billion international sukuk programme, listed on the London Stock Exchange with its inaugural USD 2 billion issuance oversubscribed six times by over 300 institutional investors, diversifies SRC’s funding base and introduces foreign capital to Saudi housing finance. SRC’s credit ratings (Fitch A+, S&P A, Moody’s A2 — all stable or positive) support cost-effective funding that translates to competitive mortgage pricing.

The secondary market infrastructure matters for the 2026 outlook because it removes a potential constraint on origination recovery. If mortgage demand recovers as Jadwa Investment projects, banks need balance sheet capacity to accommodate increased lending volumes. SRC’s refinancing capability enables banks to originate, sell, and re-originate — maintaining lending velocity even as the total stock of outstanding mortgages grows. Without this secondary market, the concentration of real estate lending at nearly 30 percent of bank credit could become a binding constraint on new origination.

Homeownership Trajectory Implications

For the homeownership rate trajectory, 2026 mortgage market performance will determine whether the 65.4 percent level achieved by end-2024 can be extended toward 66-67 percent. The remaining 4.6 percentage-point gap to 70 percent requires approximately 0.77 points per year over the six remaining years (2025-2030), achievable if mortgage origination volumes recover and housing supply materialises at Sakani-accessible price points.

The 2025 origination decline of 11 percent in contract numbers and 11.7 percent in value represents a headwind to this trajectory. Over 54,000 Saudi families benefited from housing support programmes during H1 2025 alone, and over 48,000 families moved into their homes during the first six months — demonstrating continued programme activity. But the pace needs to accelerate: if 2026 delivers only the same volume as the moderated 2025 level, the annualised homeownership rate growth may fall below the 0.77 points per year required to reach 70 percent by 2030.

The programme’s direct delivery channels — Sakani allocations, developmental housing for low-income families, and off-plan projects through Wafi — continue to serve families independent of private mortgage market dynamics. Over 27,000 subsidised loans were signed for low-income beneficiaries during H1 2025, exceeding the mid-year target by 63 percent. These government-facilitated pathways provide a baseline of homeownership conversion that supplements private mortgage activity.

Key Risks to the 2026 Outlook

Several risk factors could derail the anticipated demand recovery. A potential US Fed pause or reversal in rate policy would force SAMA to follow, potentially increasing mortgage costs and reducing borrowing capacity at a time when the market needs affordability improvement. Construction delays in NHC or ROSHN projects could reduce the available supply that Jadwa Investment identifies as a demand catalyst — if families cannot find affordable units, rate cuts alone will not generate origination volume.

The impact of the White Land Tax reform on land prices and developer project economics introduces uncertainty. While the WLT’s long-term effect should increase land supply and moderate costs, the transition period could create disruption as landowners adjust behaviour and developers recalibrate project economics. The Riyadh rent freeze provides a stable rental backdrop but may also reduce landlord investment in rental stock, creating supply-side pressure in the rental market that could affect families’ rental-to-ownership transition decisions.

The foreign ownership law reforms introduce new demand from non-Saudi buyers, which could support market activity and liquidity but also compete with domestic buyers in popular zones. The net effect on mortgage market dynamics — whether foreign demand stimulates market activity that benefits all participants or creates price pressure that crowds out programme beneficiaries — will depend on zone designation, the volume of foreign transactions, and the geographic distribution of foreign demand.

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