In March, the Israeli public took out mortgages that continue to rise and break a new record each time. Now the previous record of last December was broken with mortgages amounting to NIS 13.43 billion, a jump of 20% compared to the previous month when the public took NIS 11.22 billion, and a jump of 10% compared to the previous record belonging to last December, when the public burdened NIS 12.22 billion in one month . This is also a continuation of a 56% jump compared to the corresponding month of March, when the public took on NIS 8.6 billion. Currently, housing prices have jumped 13% in the past year, and next Friday the index for March will be published and it will be clear how much the increase has continued in the last month.
Yesterday, the Bank of Israel raised the interest rate in the economy by 0.25% and it now stands at 0.35%, which will actually increase the public’s mortgages in one moment by NIS 47-49, or NIS 15,000-18,000 over the life of the mortgage. The Bank of Israel expects the interest rate to rise to 1.5% within a year, which means an increase in the mortgage by NIS 90,000-100,000 (for a mortgage of which 400,000 is on the prime interest rate track for a period of 25-30 years, respectively).
Will the rise in interest rates stop the mortgage rampage in Israel?
Will the rise in interest rates stop the mortgage rampage in Israel? According to economic theory yes. It now remains to be seen how much interest rates in the world and in Israel will rise in the next two years and how this will affect household decisions.
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Of course, the market did not wait for the Bank of Israel. In the KLC track (the unlinked track, which is the mortgage anchor in the event of a rise in interest rates), interest rates have already risen by 1% or more in recent times, which means that repayments in this track have already risen – and are expected to continue rising, along with prime interest rates.
In fact, there is a double movement here: the public has taken out increasing mortgages, while inflation and interest rates are rising and mortgages are also becoming more expensive. The situation is not like it was a decade ago because mortgages in those days were disciplinary small compared to today and stood at half what they are today. As we have already pointed out, this is the 22nd trap of the Israeli public. How do we get out of it? Most likely one form or another of economic crisis.
Today, the Central Bureau of Statistics announced that in February 2022 there was a decrease of about 3.5% in the number of new dwellings sold and these amounted to 5,065 new dwellings compared to 5250 in January 2022, but it is still a 35% jump in new dwelling sales in February 2022 compared to February 2021 , Then the numbers stood at 3,742.
Mortgages amounting to half a trillion shekels
The volume of open mortgages in Israel is approaching a crazy high of about half a trillion shekels, as is the number of open mortgages – that is, the number of people who pay a mortgage. According to data from the Bank of Israel for February, the total mortgage volume stands at a record NIS 476 billion, a jump of 17% per year compared to NIS 406 billion in February 2021, or an increase of NIS 70 billion per year (the public set a new record of NIS 116 billion in 2021. But it should be remembered that at the same time the public is also repaying the mortgages it is taking on so that the total volume increases of course less than the total volume of mortgages).
The figures are frightening, no matter how you look at them: the volume of mortgages with a high financing rate, ie over 60% of the value of the apartment (LTV) continues to rise and stands at 45.3% of all new mortgages, while the multi-year average stands at 34.5%. The average mortgage for February is NIS 941,000, an increase of 3% compared to January and a jump of 18% compared to February last year.
And if that’s not enough, then in the Bank of Israel’s financial stability report he published that 16% of mortgage borrowers take out an additional loan to buy the apartment – that is, leverage upon leverage, and here at BizPortal we revealed that contractors and mortgage borrowers cheated banks to take mortgages at more than 100%.
A 130% jump in mortgages in a decade
In the last decade, the volume of mortgages in Israel has jumped by 130% from NIS 200 billion at the beginning of 2012 to NIS 476 billion, with the number of mortgage borrowers approaching one million and standing at 976,000 open mortgages. It is just important to note that this is an increase of ‘only’ 35% compared to 724,000 open mortgages, that is – each mortgage has become significantly more expensive.
According to data from the Bank of Israel, 44.4% of the volume of mortgages (NIS 211.7 billion) is in the range of NIS 600,000 to NIS 1.2 million, 18% of mortgages are in the range of NIS 300,000-600,000, 20% of which are in the range of NIS 1.2-2 million, 8 % Are in the range of NIS 2-4 million and 2% are over NIS 4 million per apartment.
The risk of the mortgage-taking public is growing
The problem is that in parallel with the sharp rise in the volume of mortgages that the public is taking on – inflation is also rising, and interest rates in the economy have begun to rise – and are likely to continue to rise (as mentioned, the Bank of Israel itself expects a 1.5% increase in Bank of Israel interest rates). In practice, this means that people will take out mortgages for longer years, and in any case the monthly repayments and the volume of the mortgage will simply increase. why? Because inflation affects not only interest rate repayments but also the amount of the mortgage principal. Simply put: for every NIS 100,000 owed in an index-linked track, a 3% increase in inflation per year throughout the mortgage period will add a payment of NIS 3,000 to the entire mortgage. Since there is an effect of compound interest, this means an addition of about NIS 250,000 to the total mortgage repayment over the years (assuming that it is a mortgage of NIS 900,000, with 30% of it being in an index-linked track).