January 27, 2023

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Mortgage Borrowing Rises Slightly in Israel in November

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On Tuesday, the Bank of Israel released a report, which showed that there had been a slight increase in mortgage borrowing in November.

Last month, the amount of monthly loans climbed to NIS 7.6 billion, which was an increase from October of 24%, but was significantly lower than the numbers from just a few months ago.

The decline

Back in March, mortgage borrowing had hit an all-time high of about NIS 13.4 billion, just before the bank had begun raising the benchmark interest rate.

It had been at a low of 0.1% in March, but stood at 3.25% in November, after the Bank of Israel hiked it for the sixth time in a duration of eight months.

Higher housing prices have been troubling mortgage borrowers, as they have increased year on year by 19.8%.

Likewise, the Bank of Israel was driven to increase interest rates in order to manage inflation, which had grown in October to reach 5.1%, exceeding the target range of the bank of between 1% and 3%.

The Bank of Israel began raising interest rates in April and last month, it did so for the sixth time. Due to these increases, the monthly mortgage payments have increased risen substantially for borrowers.

Interest rates

As most of the mortgages are tied to deals involving variable interest rates, there is a rise in cost every time there is an increase in base rate.

According to the central bank, it expects to make further increases in the interest rate in the coming months.

The borrowing numbers seen in the last three months had previously been seen back in 2020, when the global pandemic had slowed down the real estate market rather sharply.

The overall housing market data shows that this is primarily because the number of new mortgages has declined, rather than a fall in the value of the loans.

There has been a rather drastic drop in the number of new home sales. The period between July and September saw a 17.7% drop in sales, as opposed to the last few months.

Real estate market

Logically, mortgage borrowing should go up because the average home prices have increased and wages have grown at a slower pace of 4%.

The Chief Economist Office of the Finance Ministry published a separate report on Tuesday, which dictated that real estate residential transactions in October had been the lowest since April 2020.

Moreover, they were also the lowest for the month of October in 20 years. The report showed that only 5,100 housing units had been purchased in October this year, which was a 65% drop from the previous year.

It was a 35% decline from September. Last year, Israelis had purchased about 14,000 housing units in October and more than one-third of them had been made by investors.

This had been the highest number in a month recorded since 2015 and had happened just before an 8% purchase tax had been restored by for second-home buyers in the country.

The purchase tax had been reduced to 5% in 2020 for encouraging investors to enter the real estate market.

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