Israelis Taking Larger Mortgages Despite High Interest Rates

Despite rising interest rates, Israelis are increasingly taking out larger mortgages, with a growing portion of these loans representing over 60% of a property's value. An analysis by appraiser Matan Lachiani, based on Bank of Israel data, shows that in the past year, 47.3% of mortgage funds were issued with over 60% financing, up from 43.9% before the interest rate hikes began in September 2022. This trend is more pronounced for more expensive properties. For apartments priced between 2 to 3 million shekels, the share of mortgages exceeding 60% financing rose from 41.5% to 49.1%, and for properties over 5 million shekels, it increased from 21.5% to 30.2%. While the average monthly repayment as a percentage of income has only slightly increased from 28.9% to 29.5%, the proportion of balloon and bullet loans within mortgages has significantly grown from 8.8% to 14.7%.

Experts explain this phenomenon by the way buyers are structuring their financing. Judith Galcof Porat, mortgage manager at Bonus Credit Financing, notes that balloon loans and 20/80 schemes defer payments until the property is handed over, and mortgage terms are lengthening, with 30-year mortgages becoming standard and the average term nearing 27 years. This can lead to a sudden jump in monthly payments upon handover, especially if interest rates change. Furthermore, parents are increasingly contributing to their children's down payments by taking out loans against their own homes, effectively increasing the total family debt beyond what appears on paper.

Real estate developers observe this shift, with buyers of mid-to-high-priced homes showing greater reliance on mortgages and sensitivity to down payment requirements and monthly costs. Avi Levi, CEO of Yehuda Levi Group, states that many deals are delayed due to the complex financing structures needed to bridge the gap between buyers' desires and their payment capabilities. However, some industry professionals, like Shalom Amoial from Bank Jerusalem and Erez Aviv from Aviv Urban, suggest that high leverage doesn't always indicate financial distress. They argue that affluent buyers may use credit strategically to maintain liquidity for other investments or business opportunities, especially during uncertain economic times. Banks, they add, assess repayment ability and future liquidation sources, particularly for balloon loans.

The core financing limits set by the Bank of Israel remain unchanged: up to 75% for a primary residence, 70% for a home upgrade, and 50% for investors. The analysis indicates that the increase in leverage is not driven by investors, whose share of mortgage funds has decreased. Lachiani concludes that the Israeli housing market has fundamentally changed since before 2022, requiring buyers to carefully consider repayment scenarios, even if interest rates do not fall, and to avoid relying solely on deferred payment loans.