The cost of a home loan has been rising more rapidly over the past year than the cost of homes, Nadine Baudot-Trajtenberg, the deputy governor of the Bank of Israel, said Monday, adding that the burden could trigger street protests as happened in 2011.
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Baudot-Trajtenberg noted that while the central bank’s interest rate has remained at a record low 0.1% for some time, mortgage rates have risen, and because home prices have increased so much, borrowers are taking out longer-term loans that increase the cost even further.
“While we continue to see rising home prices – the average cost of a home increased by 100,000 shekels [$25,900] or 7.5% – the actual cost of the house climbed a lot faster,” she told a conference at the Interdisciplinary Center Herzilya, referring to the one-year rise. “The increased cost raised the purchase cost 13.5%, or 229,000 shekels.”
Baudot-Trajtenberg’s remarks came as a surprise, as she was scheduled to give an address on the role of the financial system in economic growth. They come at a time when there is little evidence that Finance Minister Moshe Kahlon’s efforts to contain housing prices and increase building starts are having much of an effect.
Baudot-Trajtenberg attributed 36,000 shekels of the increased cost over the past year to rising mortgage rates, while 57,000 shekels was due to extended terms for loans. She noted that the last time the cost of mortgages rose so much was in 2011. “It was not a coincidence that the social-justice protests broke out then,” she warned.
She said the average term for a mortgage had grown to 21 years from 19 over the past year as borrowers sought to reduce their monthly payments in the face of overall high purchasing costs. But extending the repayment period adds considerably to the cost of the loan over its lifetime, she noted.