SAMA’s Rate Policy: Shaping the Cost of Saudi Homeownership
The Saudi Central Bank’s (SAMA) interest rate decisions represent the most powerful single lever affecting mortgage affordability in the Kingdom. Through six consecutive rate cuts between August 2024 and December 2025 — totalling 100 basis points and bringing the repo rate from 5.50 percent to 4.25 percent — SAMA has progressively reduced the cost of real estate financing, directly benefiting both Sakani-subsidised and private-market borrowers. With total outstanding real estate loans reaching SAR 951.3 billion (USD 253.46 billion) by end of 2025 and the mortgage market targeting SAR 1.3 trillion by 2030, the rate environment shapes the economics of every mortgage originated in the Kingdom.
SAMA’s rate policy is mechanically linked to the US Federal Reserve through the SAR-USD peg at 3.75 riyals per dollar. This peg, maintained since 1986, requires SAMA to broadly follow the Fed’s rate movements to prevent capital flows that could stress the fixed exchange rate. When the Fed cuts, SAMA cuts; when the Fed holds, SAMA holds. The six rate cuts since August 2024 mirror corresponding Fed reductions, meaning Saudi monetary policy is effectively imported from Washington — a structural feature with profound implications for domestic housing affordability that are entirely disconnected from Saudi housing market conditions.
This imported monetary policy creates a fundamental tension for the housing programme. Saudi housing policy objectives — expanding homeownership from 65.4 percent to 70 percent, maintaining affordability for Sakani beneficiaries, and sustaining the SAR 951 billion mortgage market — require rate conditions calibrated to domestic needs. But SAMA cannot set rates based on these domestic priorities. If US inflation dynamics require the Fed to maintain higher rates or even resume tightening, SAMA must follow — regardless of the impact on Saudi mortgage affordability, origination volumes, or the homeownership trajectory.
The Rate Cutting Cycle: A Detailed Timeline
The easing cycle that brought rates to 4.25 percent unfolded across six discrete decisions, each following a corresponding Federal Reserve action:
September 2024 — the initial 50 basis-point cut. SAMA reduced the repo rate by 50 basis points to 5.50 percent and the reverse repo to 5.00 percent, following the Fed’s larger-than-expected initial cut that signalled the beginning of the easing cycle. This was the first rate reduction since the aggressive hiking cycle of 2022-2023 that had taken rates from near zero to over 5 percent. For the Saudi mortgage market, the September 2024 cut was psychologically significant: it confirmed that the rate environment was shifting from tightening to easing, encouraging borrowers who had deferred purchases during the high-rate period to re-engage with the market.
The immediate market impact was muted. In 2024 overall, new residential mortgage contracts registered SAR 91.1 billion (USD 24.28 billion), a 17 percent rise with 18.9 percent growth in contract numbers — but this strength reflected conditions established earlier in the year rather than the September cut’s impact.
Subsequent 25 basis-point cuts through 2025. SAMA implemented three additional 25 basis-point reductions in September, October, and December 2025, bringing the repo rate progressively to 4.75 percent, 4.50 percent, and 4.25 percent. The December 2025 cut — the sixth consecutive reduction — brought rates to their lowest level in over three years and represented the culmination of a sustained easing phase.
The September 2025 cut to 4.75 percent came as the mortgage market was already showing signs of moderation, with origination volumes declining from 2024 levels. The October cut to 4.50 percent — the lowest in nearly three years at the time — provided additional support. The December cut to 4.25 percent completed the 100 basis-point cumulative reduction, establishing the rate floor from which the 2026 market recovery must build.
March 2026 status — stable rates. SAMA has maintained key interest rates unchanged since December 2025, providing policy stability as the mortgage market adjusts to the lower rate environment. The stability period allows banks to reprice their mortgage portfolios, borrowers to plan with clearer rate expectations, and the housing programme to calibrate its subsidy calculations against a known rate baseline. This stability is not guaranteed to continue — future SAMA decisions will follow the Fed’s actions, which in turn depend on US economic conditions.
Transmission to Mortgage Rates: How Central Bank Policy Reaches Borrowers
SAMA’s repo rate does not directly set mortgage rates, but it establishes the floor from which bank lending rates are built. Banks typically price mortgage products at a margin of 1-2.5 percent above the base rate, depending on the borrower’s risk profile, loan characteristics, and competitive dynamics. At the current 4.25 percent repo rate, effective mortgage rates for well-qualified borrowers range from approximately 5.25 percent to 6.75 percent — though Sakani beneficiaries with REDF profit coverage may face effective rates of zero on the subsidised portion of their financing.
The transmission mechanism operates through the Saudi Arabian Interbank Offered Rate (SAIBOR) and related benchmarks that reference SAMA’s policy rate. Changes in the repo rate flow through to SAIBOR within days, and banks adjust their lending rates within one to three months for new originations. Existing variable-rate mortgages reprice at their contractual reset dates, meaning the full portfolio effect of rate cuts materialises gradually over months to years as individual contracts reach their repricing dates.
Fixed-rate mortgages, which account for a growing share of origination, reflect the rate environment at the time of origination but are not repriced subsequently. The rapid origination growth during 2020-2024 — when rates ranged from near-zero to 5.50 percent — means the outstanding mortgage portfolio contains a wide distribution of contracted rates, creating complex dynamics for refinancing behaviour, prepayment risk, and the SRC’s RMBS programme.
Impact on Mortgage Costs: The Practical Arithmetic
The cumulative 100 basis-point reduction in the repo rate translates to measurable affordability improvement for Saudi families. The impact scales with mortgage size and duration, but representative calculations illustrate the magnitude:
For a SAR 500,000 mortgage over 20 years, a 100 basis-point rate reduction decreases total financing cost by approximately SAR 50,000 to SAR 60,000 over the life of the contract and reduces monthly payments by approximately SAR 200 to SAR 300. This monthly saving represents a meaningful improvement in household cash flow — potentially the difference between qualifying for financing under SAMA’s 55 percent DTI limit and being excluded.
For a SAR 1 million mortgage — increasingly common as property prices have risen — the cumulative savings over 20 years approach SAR 100,000 to SAR 120,000, with monthly payment reductions of SAR 400 to SAR 600. At these levels, the rate reduction effectively subsidises the equivalent of several years’ worth of property maintenance, furnishing, or savings toward a family’s other financial objectives.
For Sakani beneficiaries with 100 percent REDF coverage, the direct benefit accrues to the government — REDF pays less in profit coverage per loan, potentially freeing fiscal resources to serve more families. If the rate reduction saves SAR 200 per month per contract, and the programme serves 100,000 active contracts, the aggregate fiscal saving approaches SAR 240 million per year. These freed resources can fund additional Sakani allocations, expand developmental housing for low-income families, or support the over 27,000 subsidised loans signed for low-income beneficiaries during H1 2025.
For beneficiaries with partial REDF coverage (35-99 percent), the rate reduction directly reduces their out-of-pocket financing costs on the uncovered portion, improving household economics and reducing the risk of payment stress. For private-market borrowers without Sakani subsidies, the rate cuts represent the only source of affordability improvement in the financing cost structure — making SAMA’s rate decisions disproportionately important for non-programme homebuyers.
The Market Response Paradox: Lower Rates, Lower Volumes
Despite lower rates, new residential mortgage originations declined 11 percent year-on-year in 2025 to 108,795 contracts valued at SAR 80.42 billion (USD 21.43 billion). This paradox — declining volumes despite improving rate conditions — suggests that factors beyond interest rates are influencing borrower behaviour.
Elevated property prices are the most significant non-rate factor. Riyadh residential prices climbed 10.6 percent year-on-year in Q2 2025, and apartment prices had surged 82 percent since 2019 according to Knight Frank. When property prices rise faster than borrowing capacity improves through rate cuts, net affordability can deteriorate even as financing costs decline. A 100 basis-point rate cut increases borrowing capacity by perhaps 8-10 percent, but a 10 percent property price increase fully absorbs that gain — leaving affordability essentially unchanged despite the nominally cheaper financing.
Market recalibration following rapid prior growth contributed to buyer hesitation. Transaction volumes in Riyadh fell 31 percent year-on-year in H1 2025, indicating that buyers were reassessing market conditions rather than rushing to exploit lower rates. The monthly trajectory reinforced this pattern: November 2025 saw new bank financing drop to SAR 4.47 billion — the lowest monthly value of the year — followed by December’s SAR 5.55 billion versus SAR 11.94 billion a year earlier.
Regulatory changes — including the Riyadh rent freeze, White Land Tax reform, and foreign ownership law — created a policy environment with significant uncertainty about market direction. Buyers evaluating whether to commit to a 20-year mortgage may defer decisions until the effects of these regulatory changes become clearer.
The residential sector price index falling 2.24 percent during the year to Q4 2025, after rising 5.12 percent year-on-year in Q1 2025, adds another dimension: buyers who expect further price declines may delay purchases to benefit from lower entry points — a rational response that extends the period of depressed origination even as underlying fundamentals improve.
Forward Rate Expectations and Housing Programme Implications
Jadwa Investment’s analysis expects demand for mortgage financing to gradually improve during 2026, supported by declining interest rates and greater availability of housing options from NHC, ROSHN, and private developers. This forecast implicitly assumes rate stability at or below current levels — an assumption that depends entirely on Federal Reserve policy decisions driven by US economic conditions.
The outlook for further SAMA rate cuts follows from the Fed’s trajectory. If US inflation continues to moderate and employment conditions warrant further easing, the Fed may deliver additional cuts that SAMA would follow, pushing mortgage rates lower and further improving affordability. Conversely, if US inflation proves persistent or re-accelerates, the Fed could pause or even reverse course — forcing SAMA to raise rates regardless of the impact on Saudi housing market recovery.
For the Sakani programme and the homeownership rate trajectory, the rate environment creates both opportunity and uncertainty. Lower rates improve affordability and should support higher homeownership rates — Jadwa Investment’s expectation of gradual demand improvement reflects this positive dynamic. But the peg-driven inability to set rates based on domestic housing conditions means SAMA cannot specifically target mortgage affordability in its rate decisions. The housing programme must design its subsidy architecture to be resilient across a range of rate scenarios, ensuring that the REDF profit coverage, Dhamanat guarantees, and DTI accommodations maintain effectiveness whether rates remain at 4.25 percent, decline further, or reverse course.
The interaction between rate policy and the SRC’s secondary market development adds complexity. As rates decline, existing fixed-rate mortgages originated at higher rates become more valuable — their yields exceed current market rates, enhancing the attractiveness of RMBS tranches backed by these seasoned portfolios. This dynamic supports SRC’s ability to securitise and refinance existing mortgages at favourable terms. Conversely, declining rates increase prepayment risk as borrowers may seek to refinance at lower rates, potentially reducing the expected cash flows from seasoned mortgage pools and complicating RMBS pricing.
For ongoing rate analysis, see our Mortgage Market Dashboard, LTV and DTI Regulations, Mortgage Market Outlook 2026, and SRC and RMBS Market Development.