The value of new mortgages taken out last year climbed 25% to a record 65 billion shekels ($16.5 billion), the Bank of Israel reported on Monday.
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The figure, which was capped by an 8% year-on-year rise for December to 5.63 billion, means that the total value of home loans in Israel is now about 300 billion shekels.
The mortgage data is the latest to show that the government is straining to cool down the residential property market despite a host of initiatives to step up the supply of new housing and raise taxes on property investors in a bid to stop them from crowding out young couples buying first apartments.
For its part, however, the Bank of Israel is concerned about the health of the banks in the event of a sharp recession or sharp price downturn as their exposure to home lending grows. Last year, home prices climbed another 8% after inflation.
Salaries and economic growth aren’t keeping up with home prices. The central bank said home prices had climbed 153% in the 10 years through 2015 while the economy grew 143.4% and wages on average by 105%.
However, the value of the average mortgage dropped slightly last year to 578,000 shekels from 600,000 in 2015, the central bank said. That reflected the fact that property investors pulled back over the course of the year and more first-time buyers, popularly known as “young couples,” filled in the vacuum.
On the other hand, the Bank of Israel found borrowers were setting aside a bigger proportion of their monthly income to pay off mortgages. It said 70% of all borrowers were putting aside up to 40% of their monthly income to service their home loans, up from just 30% five years ago.
The big rise in mortgages is due not only to rising home prices but to low borrowing rates after the Bank of Israel cut its base lending rate to a record low 0.1% last February. Governor Karnit Flug has resisted pressure from Finance Minister Moshe Kahlon to increase the rate to rein in borrowing.