Rush for mortgages ahead of VAT hike

Banking sources estimate demand for mortgages in the past few days at 50% above normal, with interest rates falling and VAT about to rise.

Banking sources report heavy customer demand for mortgages as they try to close the purchase of homes head of the VAT hike at the end of May. Industry sources estimate demand for mortgages in the past few days at 40-50% above normal, and they estimate that NIS 4.7-4.9 billion in new mortgages will be granted in May, with one bank predicting more than NIS 5 billion.

If the NIS 5 billion threshold is crossed, this will be the largest monthly figure for new mortgages so far this year.

"People are rushing like mad to the banks. We haven’t seen anything like this in a long time," said a top banker. "The combination of the VAT hike and the low interest rate are creating heavy customer demand."

The 1% VAT hike to 18% will come into effect on Sunday, June 2, which means that any homebuyers who cannot close the deal by Friday will pay an additional NIS 15,000-20,000. In addition, the Bank of Israel cut the interest rate for June by 25 basis points to 1.25%, two weeks after the extraordinary mid-month rate cut in the same amount to 1.5%.

The banks believe that June will be calmer, partly because the rush to close deals by May 31 will reduce the number of transactions next month. They also note that Central Bureau of Statistics report earlier this week that demand for new homes has fallen will be reflected in mortgage figures in the coming months. On the other hand, the interest rate cut will boost housing demand.

"It is still hard to assess the mortgage market trend in the long term. On one hand, there are expectations that prices will fall, and there are quite a few people who prefer to sit on the fence. On the other hand, everyone is seeing that real estate prices are not stopping, which is driving some people to prefer to buy homes now and not wait for a possible future drop in prices," said a banking source.

Although the Bank of Israel is worried about the situation in the mortgage market, and has taken measures to cool it down, they are apparently not working. At the "Globes" capital market conference in mid-May, Zaken said, "I am worried about the situation. We fear that the mortgage risk assessment is wrong. On graphs, everything looks great, but the question is whether this is forward-looking risk, and we're not sure."

Published by Globes [online], Israel business news - - on May 29, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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