The madness in the housing market is well expressed in the mortgage data. The decrease is here and it is already felt in the monthly transaction data and mortgages – a drop of tens of percent in the last few months. But there are still quite a few people who take out mortgages and buy apartments, so the volumes continue to grow. How much debt can people already take on? It turns out a lot.
According to new data from the Bank of Israel, for the first time, there are more than a million families in Israel who pay a mortgage every month. This is almost half of the families in Israel (46%), as there are approximately 2.2 million households in Israel. A mortgage is paid over 30 years, some of the time the interest rate rises (like now) and increases the payment burden, and at other times (as was the case in the last decade – in an extreme way – it goes down). That is, it is a long-term commitment for which the risks must be managed. It is impossible to take an average mortgage of one million shekels in the last two years (for new mortgages) and think that the interest rate will not rise. This was expected, we warned of the expected consequences of this on households – after the interest rate increases by the Bank of Israel, the monthly mortgage repayments have so far become more expensive by 800-1,500 shekels per month (depending on the amount of the mortgage you took and how much of it is in the prime interest rate track, which has become significantly more expensive this year from 1.6% to 4.75% as of this week’s interest rate hike).
What is the average mortgage of a family in Israel?
As mentioned, new mortgages are about one million shekels, but what about the average mortgages of all families, those who took out 5, 10, and 20 years ago? These are of course lower and therefore the average of the entire system is lower. According to a BizPortal analysis of Bank of Israel data, the average mortgage for an Israeli family is NIS 520,000. How significant is this increase? is very. This is a 28% jump in the average mortgage for a family in just 3 years (compared to the average in 2019), or an increase of 34% in 4 years.
In terms of numbers, at the beginning of the year the total mortgages of the public approached half a trillion shekels and since then the numbers have continued to rise. In June, the half trillion mark (500 billion shekels) was crossed for the first time, or 17% of all capital in the State of Israel, and now it is already 521 billion shekels.
The portion of the mortgage from the monthly income of the families – a sharp increase, on the other hand, the loans ‘for any purpose’ are in a sharp decrease
Of the new mortgages that the public takes, 47% of the mortgages constitute a heavy financial burden on households. When is a mortgage considered a heavy burden? When it would make up more than 30% of the family’s monthly income (ie – if you bring in NIS 10,000 a month, the monthly mortgage repayment is more than NIS 3,000). If in previous years it was about 35% of mortgages, now it is already 47%, while the increase in recent months is consistent and continuous.
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On the other hand, the loans for ‘any purpose’ are in a dive: in the month of October, only 300 million shekels were taken from banks in this framework, only 50% of the amount taken just a year ago. In the previous month it was a 20% drop. Will the trend continue here as well?
In the meantime, you can see the slowdown in the volume of loans for all purposes – in the last six months, the trend is a slight decrease from the record levels of NIS 158.5 billion to NIS 157 billion. This is a decrease of 1%. It may not seem like much, but it is difficult to find in the last decade a six-month period of containment in the volume of loans for any purpose in banks.
What is the scope of “luxury mortgages”
How many families are able to pay a mortgage of more than NIS 2 million? (Not the price of the apartment, the average price of the apartments is close to NIS 2 million. We are talking about the mortgage, that is, the amount of money the family took as a loan from the bank) Apparently not much. In practice, we are talking about quite a few families – 12% of all mortgages are more than NIS 2 million. In the numbers, we are talking about mortgages amounting to 49.6 billion shekels for mortgages that are 2-4 million shekels, and another 13 billion shekels for mortgages of more than 4 million shekels. We don’t even want to think about how much the monthly repayment is for something like this (it’s not complicated to calculate).
And what about the rest of the public?
22% of the mortgages are in the amount of NIS 1.2-2 million per apartment and a total of NIS 116 billion. 43% are in the range of NIS 600,000 to 1.2 million (NIS 225 billion), another 16.5% are in the range of NIS 300-600,000 (NIS 86 billion), and those who are already nearing the end of their mortgage payments (mortgage up to NIS 300,000) total by an additional 6%, or NIS 32 billion.
When you pay a mortgage to the bank, you first pay back the interest and only in recent years the ‘principal’
It is important to say – when you return a mortgage to the bank, you first pay mainly the interest payments. The principal payments (the original loan you took out) are paid more towards the end and less at the beginning. In simple words: if half the years have passed, you have not returned to the bank half of the loan you took – but less. You still have more than half of the mortgage to pay. And when you want to recycle it – suddenly you will find it.
The reason is the ‘Spitzer settlement schedule’ – the mortgage system designed to allow families to repay approximately the same amounts every month (assuming that interest rates in the economy and inflation do not jump… this year they jump). If the public had used a normal settlement schedule, they would have paid much more in the first years, but the mortgage would have ended much faster. In practice, the absolute majority of families cannot pay much more in the first years and therefore use the Spitzer board.
How much do you pay back to the bank for the mortgage you take?
In the last decade the interest rate in the economy was zero, so people tend to think that the total return is say 1.5 times what they take. But the truth is that you pay back almost twice as much. If you took out a mortgage of half a million shekels, expect that in total over the years you will pay back a million shekels. If you took out a NIS 1 million mortgage – you are expected to pay back NIS 1.96 million.