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Mortgage Lending Continues to Decline as Interest Rates and Housing Costs Rise

Nov 19, 2022

The Bank of Israel released some numbers this week, which showed that surging housing costs and higher interest rates have caused a decline in mortgage borrowing in the country.

The month of October saw the overall value of loans fall to NIS 6.09 billion, while they had been NIS 7.7 billion and NIS 9.63 billion in September and August, respectively.

The numbers

This total is the lowest for a month since June 2020 and indicates that the value of mortgages has declined 31% in the last three months, as opposed to the previous three months i.e. from May to July.

According to overall data from the housing market, this is not because individual loans have declined in value, but because fewer new mortgages have been taken out.

In fact, there has been a whopping 24% decline in the number of new homes sold in three months, from July to September, as opposed to three months earlier than that.

The average prices of home has risen, as the cost of an average apartment in Tel Aviv is somewhere between NIS 1.9 million and NIS 3 million.

Meanwhile, wages have not grown at the same pace, as there has only been a 4% rise year-on-year. Therefore, it is logical that mortgage borrowing should go up.

Interest rates

Since the beginning of the year, there has been a steady rise in the interest rates, which also apply to mortgages.

The fixed-rate mortgage that was available in January was 3.1% for five years, but the same kind of loan is now available at 4.71%.

The rate of fixed-rate home loans are between 5.6% and 6.0% for a 30-year term. Estimates show that interest rate increases have pushed up by cost of a home loan by NIS 1,000 for Israeli households per month.

The experts

According to experts, there is a possibility that interest rates will go up further because inflation is persistent, but the increases will be limited.

Nevertheless, anyone looking for a home loan is advised to take it at the current fixed rate, as long as they can make the monthly payments.

The Bank of Israel has clearly stated that more hikes in the interest rate should be expected, which means that the mortgage rate available today may not be available in the future.

The figures released by the Central Bureau for Statistics (CBS) for October showed that there has been a 19.8% increase in house prices in the last year.

Meanwhile, salaries have only increased 4% in the same time period and the Consumer Price Index (CPI) has gone up by 5.1%.

There are obviously concerns about how long the exorbitant prices will persist, particularly in Tel Aviv. But, the Bank of Israel does not expect a significant fall in house prices.

The affordability of mortgage depends on the monthly income of a household and the payments cannot be higher than one third of that income.

Hence, entering the housing market has become tougher due to steeper prices, resulting in fewer number of mortgages.

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