The mortgage lending market broke all-time records in June. The public took out 7 billion shekels ($1.9 billion) in mortgages during the month, the Bank of Israel reported Sunday. That’s 50% more than the monthly average over the past year.
- Banks to Set Aside $730m for Mortgage Risk
- Money-laundering Pushing Up Housing Prices
- Dollar Falls After Bank of Israel Chief's Remarks
The sharp increase in the number of mortgages is consistent with Finance Ministry data, which showed a substantial increase in the number of residential real estate transactions. In May alone, 11,500 homes were sold, treasury sources said. That figure has not been equaled since the beginning of the last decade.
The major increase, Finance Ministry staff said, was from buyers purchasing residential real estate as an investment rather than as their own residence. The number of sales to investors was up 74%, and it’s believed many of these buyers rushed to complete transactions before an expected increase in the purchase tax.
In addition, however, there were 51% more sales to young couples buying their own residence. Many of them had sat on the fence last year waiting for the passage of then-Finance Minister Yair Lapid’s plan to exempt qualifying young couples from 18% value-added tax on the purchase of new residential construction. There has also been an increase in home purchases in Israel by overseas buyers.
In its weekly survey, the Finance Ministry noted that preliminary June data indicated an exceptional level of real estate sales activity, “the highest at least since the beginning of the last decade.” It generally takes two to three months between the time a purchase agreement is signed and the conclusion of the mortgage paperwork with the bank. Sources in the banking industry expressed the view that the major jump in the numbers of people signing purchase agreements for homes in June will produce an additional surge of new mortgage financing in July and August.
For the first half of 2015, members of the public took out a total of 32.2 billion shekels in mortgage loans. If that pace continues in the second half of the year, it would result in 64.4 billion shekels in mortgage financing. By comparison, the last peak mortgage financing year was 2013, when 52 billion shekels in mortgage loans were written. Even if the pace in the second half of the year slows, 2015 could still top the 2013 figures.
A banking industry source said that those with access to enough of their own funds to buy homes for investment purposes are not holding back. “There are no investment alternatives, and there is no real expectation that the plans from [Finance Minister Moshe] Kahlon and the new government will address the [high] cost of housing for the foreseeable future,” the source said.
Another government housing program – the affordable housing plan known as Mehir Lemishtaken – is not an immediate solution to the problem, the source added. Under this plan, the government sets the price of the land on which new residential housing is built and then solicits bids from developers, who compete to provide the homes at the lowest price.
“People who need a home to live in will not allow themselves to take the risk while waiting for prices to fall. The result is that everyone is descending on the market out of concern over a continued rise in prices,” the source said.
The dramatic rise in the volume of mortgage financing also increases the banks’ exposure to the vagaries of the housing market. And as the banks increase their residential mortgage lending, they curb their business lending. Nearly half of all outstanding loans from Israeli banks are in some way exposed to the value of real estate in the country.