People are changing their consumption habits to cope with the additional 1,000 shekels added to their payment.
Even after a dramatic year in which mortgage interest rates nearly quadrupled and transaction volume significantly decreased, mortgage banks do not believe that we are facing significant price declines or a wave of apartment sales by buyers who won’t be able to meet the payments.
Mortgage interest rates have nearly quadrupled in the past year.
Last year was dramatic in the mortgage market: mortgage interest rates nearly quadrupled, apartment transaction volume decreased by about 40% compared to the corresponding months of the previous year, and monthly mortgage loan volume has been declining at a similar rate since the peak in March last year. Where is the market heading? And to what extent can those who took out mortgages at low interest rates in recent years truly meet the new conditions? We spoke with three mortgage managers from major banks in the field: Mizrahi Tefahot, Hapoalim, and Leumi.
Sharon Ben Yehuda, Deputy Manager of the Mortgage Branch at Mizrachi Tefahot, says similar things: “In the first quarter of last year, the mortgage market and the real estate market reached record performance, and at its peak, loans in the housing market reached over 13 billion shekels per month. Then, interest rates started to rise, and since then, we have seen the mortgage market contract. We estimate that most of the tools to increase interest rates have been exhausted by the Governor of the Bank of Israel, and for the first quarter of the year, we estimate that the market stabilizes at around 7 to 8 billion shekels per month in new mortgage loans. This is the environment that was in the market for several years before the corona. What is unusual are the volumes of 12 to 13 billion shekels in 21-22. Regarding April – the Bank of Israel has not yet provided details, but it was full of holidays anyway. We see new inquiries, people are interested.”
When the market reached such magnitudes of mortgage loans in the past, interest rates, house prices, and the amount of mortgage loans were lower. So perhaps it’s not about stabilization? “That’s true. Their average mortgage in the pre-corona period was 700,000 NIS, whereas today it is around 1 million NIS. Indeed, the most significant difference between the market then and today is the interest rate climate.”
How are customers coping with the increase in interest rates? Learn more about real estate and infrastructure.
Have mortgage lenders contacted you to request an extension of your mortgage term or to address repayment issues? Last November, when we thought the increases were starting to be very significant, we announced that we allowed the extension of the prime rate on their mortgage, without compromising the terms. In November-December, many people were interested but did nothing about it. Starting from January, after interest rates continued to rise, more customers took the step, but it involves hundreds each month – out of 170,000 active loans in the bank.
“First and foremost, we see a decrease in demand from investors. The increase in interest rates has created more attractive investment paths for them, and today, solid savings paths at the bank can yield them annual returns of 4 to 5%, while asset returns yield only 3-4%.
“For other buyers, we mostly see a psychological effect. Due to the decrease in transaction levels and the overall atmosphere, a decrease in apartment prices is expected.”
