The housing market was quite strong in the first half of 2013, and NIS 25.5 billion in new mortgages were granted in this period. July is also shaping up to be a strong month, with an estimate of at least NIS 5 billion in new mortgages. If this pace continues in the coming months, 2013 will be record year for mortgages.
The public's outstanding mortgages totaled NIS 234 billion at the end of June, 5% higher than at the end of 2012.
The monthly increase in new mortgages has been 20-30%. The Bank of Israel has not been indifferent to the situation, and has taken measures to cool the housing market. But its instructions, as well as government declarations that it will seek to lower home prices, have not deterred homebuyers. It seems that the low interest rate is stronger than any restriction or declaration.
It cannot be said, however, that the Bank of Israel's various measures have had no effect at all on the mortgage market. An examination of the data for the first half of 2013 show that leverage has fallen slightly, but is that enough to reduce the risk in this market? It seems that the Bank of Israel also realizes that it is not enough, and Supervisor of Banks David Zaken recently hinted that more restrictions may be imposed on the market.
The average amount of new mortgages in the past 12 months has been NIS 4.3 billion, almost 30% higher than the monthly average in the preceding 12 months. The jump is due to the increase in new mortgages to a monthly average of 7,192 mortgages in the past 12 months from a monthly average of 5,884 mortgages in the preceding 12 months.
While the number of new mortgages has increased by 22% within a year, the average mortgage has increased by 3%. The average mortgage in the past 12 months rose to NIS 584,000 from an average of NIS 567,000 in the preceding 12 months. Israelis are keeping their mortgages stable. In the past two years, there average mortgage has barely changed even as the number of people taking mortgages has soared.
38.7% of new mortgages in the first half had a high loan-to-value (LTV) ratio of over 60% or higher. The proportion is down slightly from the 40.5% of high LTV mortgages in the first half of 2012.
The drop in high LTV mortgages is especially noteworthy among mortgages with LTVs over 75%, which fell by over half from 6.7% of all mortgages in the first half of 2012 to 3.1% of all mortgages in the first half of 2013. The drop was due to the Bank of Israel's order in November 2012, which capped the LTV, and its order from February 2013 requiring the banks to make larger capital provisions for high LTV mortgages.
The average household pays 30% of its monthly income to service its mortgage. This figure is a good indication of borrowers' ability to meet their mortgage payments. The Bank of Israel states that this figure was roughly the same in the first half of 2012.
The small drop in the market's leverage is also seen in this variable. For example, if 5.6% of borrowers paid more than 60% of their household income in mortgage payments in the first half of 2012, this proportion fell over 40% to 3.2% of borrowers in the first half of 2013.
NIS 2.41 billion in mortgages were in arrears of over 90 days at the end of June. Despite the sharp increase in the amount of mortgages, the amount of problem mortgages has been flat, and even declined slightly. The amount of mortgages in arrears stood at NIS 2.58 billion at the end of June 2012.
Mortgages in arrears account for just 1.03% of all mortgages, an all-time low, and strengthening the banks' perception that the mortgage market is not high risk. However, it should be remembered that the last thing that distressed households will forego is the mortgage payment, and the above figure may not reflect borrowers' true situation as they make every effort to meet their payments.
Borrowers also benefit from the booming real estate market, which allows them, if necessary, to sell their home fairly easily at a good price, and repay their mortgage.
Published by Globes [online], Israel business news - www.globes-online.com - on July 29, 2013
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