December 5, 2022

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Borrowing for Home Purchases Continues Decline due to Higher Prices and Rates

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This week, the Bank of Israel announced that there was a 20% drop in mortgage borrowing from August to September, which brought it down to its lowest level recorded since September last year.

There were NIS 7.7 billion worth of home loans taken out in September, as opposed to NIS 9.6 billion in the prior month. This makes it the fourth consecutive month that borrowing has declined.

A steady drop

Back in March, lending had recorded a massive high of NIS 13.4 billion, but it has seen a steady drop since then because of the increase in interest rates for controlling inflation, with a slight rebound occurring in May.

As there has been an exponential rise in housing prices and individual mortgages have also gone up, the statistics show that less Israelis are purchasing homes, or borrowing money for it.

Most of the mortgage lending in the country is done at a variable rate, which means that it falls and rises with the Bank of Israel’s interest rates.

There has been a swift increase in the interest rates beginning in April, as they have gone from 0.1% to 2.75%, thereby resulting in higher monthly payments for borrowers.

It is expected that the interest rates will continue to increase for managing inflation, which has reached 4.6%, considerably higher than the bank’s target of 3%.

Mortgages

Due to the increasing cost of borrowing, it is becoming difficult for people to obtain the amount of mortgage required for buying a property.

This is because a new mortgage should not be more than 30% of a family’s net monthly income. First Israel Mortgages shows that the deals available on new mortgages are becoming highly expensive, as they have gone from 3.9% to 6.5%.

The home lending rates had been steady for several years at 1.75% until the end of March this year.

Other credit

Data shows that other credit, which is also associated with housing purchases has also declined. This does not include loans obtained for this purpose.

This credit has also fallen to its lowest levels of NIS 331 million that were not seen since the end of 2020, which is a 21% reduction from the numbers in August.

Michael Biton, a member of the Knesset, has called on relaxing the limit of 75% on loan to value in the mortgage space.

He asserted that because of this limit, home buyers have no choice but to sign up for more expensive and additional side loans in order to cover the borrowing they require for buying a property.

However, it should be noted that the interest rates that are currently applicable in Israel are significantly lower than some of the other countries.

Inflation in the United States is currently over 8% and interest rates have reached 3.5%. As far as other countries like China, South Africa and Canada are concerned, their rates are 3.6%, 6.25% and 3.25%, respectively.

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