Mortgage Refinancing Hits Record High as Banks Retain Most Customers

Israel's mortgage refinancing market has reached a historic annual high, with over 51.2 billion shekels refinanced in the 12 months ending in August, a 34% increase from the previous year. In August alone, approximately 5 billion shekels were refinanced. However, competition remains limited, as banks successfully retained most of their customers. Over 83% of August's refinanced mortgages, totaling about 4.16 billion shekels, were kept with the original bank, while only 840 million shekels involved switching to a competitor.

This trend suggests banks are effectively offering competitive terms to retain clients, preventing aggressive price wars. Despite the high refinancing volume, the average mortgage amount taken by new homebuyers decreased to 1.06 million shekels in August, down from 1.12 million in July and 1.08 million in August of the previous year. This decline was observed across the board, not solely due to shifts in loan types like discounted housing or investor loans.

Overall mortgage issuance for the summer reached a record 22.5 billion shekels, with August's issuance at 10.9 billion shekels. Nevertheless, the decrease in average mortgage size has not led to reduced risk levels. The proportion of mortgages taken at the maximum effective loan-to-value (LTV) ratio, between 60% and 75% of the property value, has increased. In August, these loans accounted for 48.4% of all mortgages, a slight decrease from July's peak of 49.3% but higher than the 46.8% recorded in August of the previous year.

The monthly repayment burden remains high, with 46.1% of borrowers paying over 30% of their disposable income towards mortgages in August, a slight improvement from July's 46% but still elevated compared to 47.9% in August of the prior year. The average repayment as a percentage of total income remained stable at 29.2%. Meanwhile, the market for unsecured loans backed by property continues to stagnate, with only 533 million shekels in activity. For those who did take such loans, the average repayment burden increased to 24% of income, up from 23.4% in August of the previous year.