Interest Rate Cuts Make Mortgages More Affordable, But Homebuyers Still Struggle

A recent decrease in interest rates is making mortgages more accessible for some potential homebuyers in Israel, though significant challenges remain in affording property, particularly in expensive areas like Kfar Saba. While not triggering a surge in demand like in 2021, the rate reductions are attracting customers who previously found mortgages too costly.

The Bank of Israel's key interest rate has dropped from 4.5% to 3.25% through five quarter-point cuts. For a couple looking to buy a 2.8 million shekel apartment in Kfar Saba with a 1 million shekel down payment, this means a 1.8 million shekel mortgage over 25 years. Assuming a loan structure of 900,000 shekels at Prime minus 0.7% (currently 2.55%), the monthly payment has fallen by 591 shekels compared to a year ago when the rate was 3.8%.

However, the ability to secure such a large mortgage still requires substantial income. To afford a 1.8 million shekel mortgage over 25 years, a couple would need a net monthly income of approximately 30,960 shekels, or about 26,537 shekels if the bank allows a repayment of up to 35% of their income. These figures are significantly above minimum wage, indicating that even a couple earning 15,000 shekels gross each, with a 1 million shekel down payment, would find it difficult to purchase a standard four-room apartment in Kfar Saba.

For those willing to look in less expensive areas, such as Ashdod or Kiryat Gat, the same down payment and mortgage amount would be more manageable and easier to approve. The interest rate reduction is also positively impacting the mortgage market by decreasing the number of individuals falling behind on payments, a trend that has been observed over the last three months and is seen as a positive sign for the Bank of Israel, alongside falling inflation.