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Borrowing for home purchases continues freefall amid higher rates, prices

Israelis took out 20% less in mortgages from August to September, Bank of Israel figures show, bringing lending to lowest level in a year; interest rates expected to keep going up

Construction site in the central Israeli city of Be'er Ya'akov, 2022 (Yossi Aloni/Flash90)
Construction site in the central Israeli city of Be'er Ya'akov, 2022 (Yossi Aloni/Flash90)

Mortgage borrowing fell by over 20 percent from August to September, the Bank of Israel announced this week, dropping to its lowest level since September 2021.

Home loans for the month totaled nearly NIS 7.7 billion ($2.2 billion), compared to NIS 9.6 billion ($2.7 billion) in August, marking the fourth straight month that borrowing has fallen off.

Lending reached a record high of NIS 13.4 billion ($3.8 billion) in March, but aside from a slight rebound in May, has dropped steadily since as interest rates have risen to rein in inflation.

With house prices continuing to rise exponentially, and individual mortgages likely to be higher, the numbers indicate that fewer Israelis are buying homes or borrowing to do so.

The majority of mortgage lending is at a variable rate, which rises and falls with interest levels set by the Bank of Israel.

The bank has swiftly raised rates from 0.1% to 2.75% starting in April, exposing borrowers to higher monthly payments. Interest rates are expected to continue to rise in order to manage inflation, now at 4.6%, above the bank’s upper target of 3%.

Since new mortgages must total no more than 30% of net monthly family income, the rising cost of borrowing is acting as a barrier to obtaining the level of mortgage needed to purchase a property. The best deals available on new mortgages are becoming increasingly expensive, from 3.9% to 6.5%,  according to First Israel Mortgages.

Up until the end of March, lending rates for homes had held steady at 1.75% for several years.

Other credit linked to housing purchases, excluding loans, is also at its lowest level since the end of 2020, at NIS 331 million, down 21% from August numbers.

Knesset member Michael Biton has led calls to relax the 75% limit on loan to value in the mortgage market, arguing that home buyers were being forced to take out additional, more expensive side loans to cover the borrowing needed to purchase a property.

Interest rates in Israel remain lower than in many other countries. In the US, where inflation remains over 8%, the current rate is 3.5%; in China 3.6%; in Canada 3.25%; and in South Africa 6.25%.

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