The Bank of Israel reported that Israel’s mortgage market remained strong last month, with home buyers taking out mortgage loans totaling NIS 8.4 billion in August. Mortgage borrowings last month were 7% lower than in July, when more than NIS 9 billion was borrowed, but 20% higher than in August 2023.
Concerns about inflation are affecting mortgage types, with just 23% of mortgages linked to the Consumer Price Index (CPI) now at a record low, down from 33% 18 months ago.
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Mortgage borrowing exceeds NIS 9 billion for the first time since 2022
The average interest rate for a CPI-indexed mortgage is 3.3%, while the average interest rate for a non-CPI-indexed mortgage is 4.9%.
Record-breaking balloon loan
Short-term balloon loans borrowed by builders continue to reach record amounts. These are bridge loans that take advantage of the popular financing arrangement in which an apartment is purchased with very low own funds (only 5% to 20%) at the time of signing the contract and the remaining balance is paid only upon occupancy when the apartment is completed. According to the data, NIS 1.4 billion was borrowed on such loans in August. In August 2023, balloon loans fell significantly, totaling NIS 629 million.
The Bank of Israel has previously warned about the risks associated with this activity, notably buyers being unable to pay high post-occupancy payments and liquidity risks for companies reporting high profits without actually “seeing” the money for a long period of time.
Published by Globes (en.globes.co.il), an Israeli business news site, on September 10, 2024.
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