Mortgage market mayhem: Public owes banks NIS 505 billion

High-interest rates haven’t cooled the market. In June, the public received mortgage loans amounting to NIS 11.9 billion, an increase of 2.5% over June 2021.

 THE BANK of Israel headquarters in Jerusalem.  (photo credit: MARC ISRAEL SELLEM)
THE BANK of Israel headquarters in Jerusalem.
(photo credit: MARC ISRAEL SELLEM)

The mortgage market continues to bubble, and despite the increase in interest rates, mortgages worth NIS 11.9 billion were taken out in June according to Bank of Israel data published on 25 July. This is an increase of 2.5% compared to June 2021 and a slight decrease of 0.8% compared to May 2021.

A mortgage record of NIS 13.4 billion worth of loans were taken this past March. During the second quarter, the interest rate was raised several times and reached 1.25%. The latest interest rate rise of 0.5% increased monthly mortgage repayments by 300-400 shekels; most mortgages that rose steeply were those tied to the prime rate which automatically became more expensive with the interest rate increase. 

The move was led by the Governor of the Bank of Israel Prof. Amir Yaron. According to analysts, Yaron will raise the interest rate by 0.5% in the upcoming decision that will be published on 23 August.

Despite this, the increase in interest rates isn’t reflected in a decrease in the number of loans, although people who buy apartments as investments have reduced their share in buying apartments which is now 11% of the volume of transactions. Housing prices, according to the recently published index, rose by more than 16% in the last year.

The following numbers will testify to the significance of the hot market: The average mortgage loan currently stands at NIS 988,000. In the first half of 2022, loans were taken in the amount of NIS 69 billion, in the last 12 months NIS 145 billion, and in 2020 NIS 78 billion.

 Governor of the Bank of Israel Prof. Amir Yaron at The Jerusalem Post's London conference, March 31, 2022. Yaron  (credit: MARC ISRAEL SELLEM) Governor of the Bank of Israel Prof. Amir Yaron at The Jerusalem Post's London conference, March 31, 2022. Yaron (credit: MARC ISRAEL SELLEM)
Trillion shekels worth of mortgages

According to the data, the debt of mortgage takers to the banking system crossed half a trillion shekels for the first time. Approximately 1,000,000 families own a home and pay a monthly mortgage.

Another figure just published is that the extent of leverage (the amount of the mortgage relative to the amount of the transaction) continues to rise. The leverage among 46% of mortgage recipients was 60-70% in the last month. The construction and housing development companies will publish their financial statements for the first half of 2022 in the coming weeks.

The data shows that construction companies such as Azorim, Africa Residences, Shikun and Binui Real Estate, Ashstrom, Dimari, Parshkovski, Bonei Hatichon and Mor increased the sale of new apartments, and the public financed the purchase through an increase in credit granted by various banks.

The Chairman of the Institute for Structural Reforms Adv. Shraga Biran said 25 July with the publication of the Bank of Israel data that there are still hundreds of thousands of households who can’t afford to buy an apartment even before the interest rate increases, but no one is counting them, and no one is stepping forward and taking action to solve the housing crisis.