News Column

Mortgages up in February even before latest rate cut

February 27, 2014

By Irit Avissar, Globes, Tel Aviv, Israel

Feb. 27--Banking sources estimate that NIS 4.2-4.4 billion in new mortgages were issued in February 2014. While this in line with the monthly average for the past 12 months, given that 2013 was a record year for mortgages, and that February is a short month, the figure is quite high.

The amount of February's mortgages was 15% above the NIS 3.8 billion in new mortgages were issued in January, but the strike at the Land Registry (Tabu) affected the figures for that month. February's mortgages were 13% higher than in February 2013.

Despite the strong numbers in February, banking sources say that it is premature to know whether the surge in new mortgages will continue in the coming months, and that February's figure may be due to January's strike at the Land Registry, which delayed housing deals and the mortgages to finance them.

At the same time, the mortgage market got a boost on Monday, when the Bank of Israel cut the interest rate for March by 25 basis points to 0.75%. The cut further motivates homebuyers, especially investors, to buy homes. Banking sources warn that such a low interest rate is liable to cause people to take out mortgages on unmortgaged properties as a form of cheap credit for other investments.

It is premature to know what the interest rate cut on the mortgage market will be, but some sources predict an increase in new mortgages in the coming months, if only out of fear that the Bank of Israel will impose new restrictions in the future because of the low interest rate.

In November 2014, the Bank of Israel latest macro-prudential measures included capping borrowers' monthly mortgage repayments to 50% of their income. Bankers say that the restriction has had no effect on the market.

"The mortgage market is still hot, but without the latest restriction, it would be boiling," said a top banker. He warned that, in the long term, there are ways to bypass the restrictions, saying, "We see more and more loans signed by groups of borrowers, which improves the monthly repayment-income ratio. Other solutions are to increase equity from parents or to register another property on the same mortgage. The result is that borrowers technically meet the Bank of Israel's restrictions, but nothing is done about the high prices."


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Source: Globes (Tel Aviv)

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