Mortgage taking in Israel remained high in March

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Mortgages taken in March totaled NIS 5.27 billion, about the same as the monthly average in 2015.

The Bank of Israel today reported that mortgages taken in March totaled NIS 5.27 billion, about the same as the monthly average in 2015. Mortgages taken at fixed interested totaled NIS 1.92 billion, about the same amount as mortgages at variable interest, and the remained consisted of mortgages linked to the Consumer Price Index and/or foreign currency.

Since the interest rate is currently at an all-time low, and because mortgages are taken for lengthy periods during which the interest rate is expected to rise, it is unclear why the public is taking such a large proportion of its liabilities at variable interest. In principle, the right thing to do is to pay slightly higher interest on a mortgage at a fixed rate, thereby protecting the mortgage taker from future interest rate increases.

The Bank of Israel's great fear is that the interest rate will rise and the regular spending by households on mortgages will rise consistently as a result of higher interest payments, until those unable to meet their mortgage payments become insolvent. Since lenders have the right to repossess the property in Israel, a wave of insolvencies resulting from inability to meet mortgage payments is a nightmare scenario for the Bank of Israel.

Published by Globes [online], Israel business news - www.globes-online.com - on May 1, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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