Mortgage Lending Surges Despite Falling Apartment Sales

In August, Israeli citizens took out approximately 11 billion shekels in mortgage loans, a 5.7% decrease from July, though the overall level remains high. When including mortgages for various purposes, the total reaches about 11.5 billion shekels. For the first eight months of the year, total mortgage loans amounted to roughly 80 billion shekels, a 14% increase compared to the same period last year, according to data reviewed by auditor Majd Karam.

Karam explained that the discrepancy between rising mortgage lending and declining apartment sales is likely due to older real estate deals agreed upon in previous years. Buyers are now reaching the stage of obtaining mortgages to fulfill payment obligations for these past agreements, rather than reflecting current demand for new purchases. He clarified that mortgage funds are designated for housing and cannot be easily diverted to other uses, meaning the increase in loan volume doesn't necessarily indicate a current surge in apartment buying.

Additionally, Karam noted a shift in borrower behavior, with an increase in loans tied to the prime interest rate. The share of prime-linked loans rose from 22% to 24% of total mortgages, at the expense of variable-rate loans not linked to an index. This means that for every 100 shekels borrowed, 24 shekels are now linked to the prime rate, up from 22 shekels previously. Prime-rate loans move with the Bank of Israel's interest rate, implying borrowers are betting on future rate decreases to lower their payments, though rising rates could increase costs.

Karam cautioned that the strength of the mortgage market does not necessarily reflect new demand in real estate but partly accounts for past deals reaching the financing stage and changes in borrower preferences for interest rate structures. He emphasized the importance for the public to pay attention to interest rate changes, loan terms, and bank procedures, warning that betting on the prime rate means wagering on the Bank of Israel's interest rate direction, and a shift could lead to higher monthly payments.