Israeli Mortgage Debt Grew by NIS 8.5 Billion in the First Half of 2012

Numbers buttress concerns that housing market is heating up again.

Mortgage debt grew by NIS 8.5 billion in the first half of the year - with the pace picking up to growth of NIS 1.6 billion in June alone - providing further indication that the housing market is heating up after a brief cooling-off period.

The data from the Bank of Israel's information and statistics division showed that home loans grew 3.3% in the first half to NIS 267.1 billion. That was more than double the rate for other household debt, which grew by 1.6% since the start of the year.

Mortgage debt, which is by far the largest component of household debt, reached NIS 374.6 billion at the end of June.

This year's rate of growth for home loans remains slower than in 2011, when such loans grew by about NIS 20 billion, and in 2010, when they expanded by NIS 24 billion.

Nevertheless, the data suggest that efforts to rein in the growth in housing prices and demand had only a brief impact in the second half of last year and early in 2012. The mortgage figures may serve to give the central bank additional grounds to take measures to restrain mortgage growth and prevent a real estate bubble from emerging.

The Bank of Israel is expected to announce another cut in its base lending rate Sunday to 2% from 2.25%, a move that would lower the cost of borrowing for homes further and encourage buying. Although most economists are predicting a rate cut, among those who forecast no change, concerns about an overheating real estate market are the chief reason they cite for the central bank holding the line.

In addition, Finance Minister Yuval Steinitz on Sunday signed a directive lowering the charges when homeowners buy mortgage insurance. Under the new rules, which go into effect next January and cover new policies as well as renewals, the cost of coverage will drops by tens of shekels annually.

Right now the charge is equal to as much as 40% of the premium. But the rate will go down to a ceiling of 30% next year and to 20% by 2015.

In July, the number of new mortgages reached NIS 4.9 billion, up from NIS 3.9 billion in June and a monthly average of NIS 3.4 billion in the first half of the year. June and July are typically peak months for people to take out home loans and the effect may have been exaggerated by concerns surrounding the increase in value-added tax slated for September.

In the business sector, borrowing rose a more modest 0.2% in June, by NIS 1.4 billion to approximately NIS 792 billion, the Bank of Israel said. Most of that rise, however, was due to the depreciation of the shekel against the dollar, which caused the shekel value of collar loans held by business to increase in value.

The central bank said that some NIS 1.9 billion in new loans taken out by businesses in the month were offset almost entirely by repayments of tradable bonds.

In July businesses, not counting banks and insurance companies, issued NIS 3.7 billion in new bonds, nearly all of tradable, the Bank of Israel reported. That was considerably higher than the NIS 2.4 billion average in 2012 to date.