Israeli Mortgage Market Hits Record High Amidst Housing Slowdown

Israel's mortgage market has reached an all-time high, with NIS 22.5 billion taken out in July-August, surpassing previous records even as the broader housing market stagnates. August alone saw NIS 10.9 billion in mortgages, a 20% increase from the previous year, according to Bank of Israel data. This surge is attributed to a lag effect, where many current mortgage applications stem from older real estate deals, particularly those involving "contractor loans" where the mortgage is taken out only upon construction completion.

Experts predict a cooling of the mortgage market starting in 2027 as these older deals mature, unless demand for new home purchases significantly increases. Despite this forecast, the current robust figures make a sharp decline in the near future seem unlikely.

The data also reveals shifts in mortgage composition. Prime rate-linked mortgages, which are not tied to the consumer price index, saw a significant recovery in August, accounting for approximately 21% of all mortgages, the highest since May 2023. This rebound is partly fueled by recent interest rate cuts, encouraging borrowers back to this option. Conversely, index-linked mortgages, despite moderating inflation, have fallen to just 10% of the total, reflecting public apprehension after experiencing high inflation.

"Balloon loans," where the principal is not repaid for several years, also continued to decline, totaling NIS 1.4 billion in August, or 13% of all mortgages, the lowest since November 2023. This trend is likely driven by recent interest rate reductions diminishing the incentive for such loans, rather than solely by regulatory interventions that limited contractor subsidies.

Furthermore, loans for any purpose, which are consumer loans secured by property, have hit a low, with only NIS 533 million taken out in August, the lowest since September 2022. This decline suggests that as overall interest rates decrease, more accessible consumer credit options are becoming viable, reducing the need for the more complex process of securing a property-backed loan.