Run on Mortgages Continued in August

At current rate, housing loans for year will reach NIS 53 million, which would shatter 2010 record.

Israelis continued taking out new mortgages at a breakneck pace in August, borrowing NIS 4.786 billion from banks last month to buy homes, according to Bank of Israel data released yesterday.

This is 4.3% less than the total sum of new mortgages taken out in July, when the public borrowed a total of NIS 5 billion.

However, if this pace keeps up, 2013 will be a record year for mortgages, breaking the record set in 2010. At this rate, a total of NIS 53 billion in new mortgages will be taken out this year. In 2010, the figure was NIS 47.2 billion, and in 2011, the public borrowed a total of NIS 46.6 billion.

Israelis borrowed 18% less last month than they did in August 2012, when homebuyers took out a total of NIS 5.8 billion in loans, the highest figure ever recorded in Israel. However, that record was set because value-added tax increased in September 2012, pushing buyers to complete transactions earlier than they would have otherwise.

For mortgages worth less than 60% of the home’s value, the average annual interest on fixed-rate inflation-linked mortgages was 1.85%, while the average interest on fixed-rate unlinked mortgages was 4.05%. For mortgages worth more than 60% of the home’s value, the figures were 2.24% and 4.49% respectively.

These are the lowest average mortgage interest rates for all of 2013.

Meanwhile, the pace of home price increases is picking up again, according to protocols from the Bank of Israel’s monetary policy discussions regarding September interest rates. Home prices were up by a total of 9.3% for the 12 months ending in July, versus 8.7% for the 12 months ending in May, according to central bank data.

Previously, the pace of home price increases had been slowing.

In addition, the number of home sales also increased.

Yesterday, land appraisal firm Zeev Cohen-Erez Cohen warned that a large number of households may be unable to meet their mortgage payments next year.

“This scenario would have a very critical impact for the economy and society,” stated the firm.

All it would take is for interest rates to increase by 0.25 to 0.50 percentage points, or a small increase in unemployment rates or in the cost of living, to push lenders past that critical point, said appraiser Erez Cohen.