The value of new mortgages approved by the country's banks was 24% higher in December than the monthly average for the year, the Bank of Israel reported on Sunday, reinforcing concerns that the housing market is heating up.
Banks extended some NIS 4.66 billion in home loans in December, bringing the 2012 total to NIS 46.64 billion, figures released by the bank showed. The total for 2012 was 4.25% more than the NIS 44.7 billion in 2011 - albeit 1.2% lower than the record amount of NIS 47.2 billion in 2010.
The December figures were likely lifted by the fact that it was the final month for property investors to avoid new restrictions barring mortgage banks from making loans to them worth more than 50% of the property. Those buying a house as a residence are also subject to tougher restrictions of between 70% and 75% of the total value.
"The Bank of Israel's limitations on mortgage borrowers, especially on investors, are continuing to prove themselves ineffective," said Idan Elkavitz, CEO of Atid Mortgages, which specializes in home finance. "We have seen a 14% increase in the amounts of mortgages taken out in December, following a 21% rise in November. That alone testifies to the Bank of Israel's policy failure in trying to reduce demand."
The central bank has been squeezed between a strategy of trying to contain the housing market and the need to encourage a slowing economy by cutting interest rates. While it reduced its base lending rate to 1.75% this month, its lowest since September 2010, it sought to counteract the effect of cheaper loans by making it harder to finance a home purchase.