Mortgage taking hits all-time record

Aura residential construction project / Photo: Eyal Izhar, Globes

Mortgage loans to the tune of NIS 9 billion were granted in March as Israelis took advantage of easier Bank of Israel rules, but a sharp downturn is expected this month.

The coronavirus outbreak has started to leave its mark on the housing market in Israel. Yesterday, the Bank of Israel published mortgage data showing that March this year was an all-time record month for new mortgage taking. The banks report that there was heavy pressure last month, and even of one case in which the police had to be called to deal with a fight that broke out outside a branch.

Besides the new mortgage stampede, customers also rushed to freeze repayments on existing mortgages. The Bank of Israel reports that mortgages to the tune of NIS 1.1 billion were frozen last month for periods of three to four months.

New mortgages totaled NIS 9 billion in March. The central bank has not yet published a breakdown of this figure (this is due in the third week of this month) but the total is unprecedented.

The previous record month for mortgage taking was December 2019, when mortgages totaling NIS 7.2 billion were granted, meaning that the new record is some 25% higher. In February this year, considered a good month for mortgages granted, the total was NIS 6.2 billion, so that there was a 50% jump from February to March.

The new record reflects fear of on the part of the public of what may be in store. In mid-March, the Bank of Israel published relaxations in the rules governing loans to households, raising the ceiling for all-purpose loans with a mortgage on the home. Under the new guideline, banks may grant an all-purpose loan secured on the customer's home (i.e. expanding the existing mortgage for a purpose other than buying a home) of up to 70% of the home's value. The previous ceiling was 50%.

Loans of this kind are generally large, and can amount to hundreds of thousands of shekels (depending on the value of the home and the size of the mortgage already secured on it). They generally bear lower interest rates than all-purpose loans taken from the banks on other tracks. The Bank of Israel believes that many decided to take advantage of the relaxation and take out these loans, although, as mentioned, detailed figures have not yet been released.

Senior mortgage bankers who spoke to "Globes" offered a different explanation. They say that mortgages executed last month were at interest rates given to borrowers before the coronavirus pandemic broke out. The bank usually approves mortgage terms 24 days before the loan is actually made. This means that mortgages taken in March reflect rates prevailing in February and early March. The bankers say that customers realized that mortgage rates were about to rise, hence the rush.

The figures for April 2020, they say, will start to reflect the sharp downturn in the housing market induced by the coronavirus outbreak. In the first half of April, mortgages will be executed that were approved at the end of February and that received further approval, but the lockdown that started three weeks ago and that led to a steep drop in the number of housing transactions will directly affect the mortgage market this month.

Published by Globes, Israel business news - en.globes.co.il - on April 7, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Aura residential construction project / Photo: Eyal Izhar, Globes
Aura residential construction project / Photo: Eyal Izhar, Globes
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