Faced with reports of the collapsing economy, the mortgage market remains an island of stability. In March, during which the first closure was announced, the market still boiled and broke records, but in April there was a sharp decline. The sales offices of the construction companies were closed, buyers and sellers remained in homes and it was also difficult for the bank branches to reach them.
In the following months - May, June and July - the volume of activity returned to levels similar to those of last year, with NIS 6 billion flowing monthly from the banks 'coffers to customers' accounts, and from there to apartment sellers. These data are consistent with the general data, which indicate a return to routine in the volume of activity of the real estate market. Banks not only returned to a normal business routine, but also increased their risk range and allowed themselves to raise leverage rates; thus, April-June 2019 With high leverage (60% –75% of the value of the apartment) 34% –36% of the total market - while in the months of Corona, April-June 2020, the share of these loans rose to 38% –40% of the total market. In relation to the equity of mortgage takers, which did not rise as much as apartment prices.
The sharp jump in arrears does not only indicate the depth of the economic crisis - immediately after the crisis broke out, the banks announced plans to defer mortgage payments. The plans were backed up by special concessions from the Bank of Israel published in April and June. The initial response was overwhelming. About 100,000 households announced within a few days that the payment to the bank had been postponed.
These were not just customers who got into a crisis as a result of going on unpaid vacations (layoffs), layoffs or the collapse of private businesses.
Many of them, as evidenced by the banking system, have resumed payments in subsequent months, and rightly so: the deferral does not embody any discount on payment, but only buys time for borrowers at the cost of additional interest payments. According to mortgage advisor Jonathan Berliner, "Many customers realized that the deferral was not worthwhile and returned to pay. Deferred payments increase the total interest repayments. Thus, the real cost of the temporary exemption from the mortgage account may reach an additional NIS 15,000.
The Bank of Israel has instructed banks not to consider deferring payment for the purpose of rating the customer's credit. This means that the request for deferment of payment will not be registered in the banking system. However, Berliner warns that the application will be indicated in the bank documents, and may affect the customer in case he requests another loan at his branch.
Deployment and deferral of loan repayment costs borrowers plus interest payments and ostensibly improves banks' profits. The other side of the coin is an increase in the number of borrowers who will collapse under the burden and not repay the loans.
If there is one thing that bankers hate to talk about it is risk. "Mortgage credit is still at low risk," says Michal Dan, head of retail and mortgage credit at Bank Hapoalim (+ 0.75% 2025). "The crisis comes after a long period of price increases in the housing market and the loan ratio in relation to the value of the assets is high," says Dan, referring mainly to the security resulting from the banks' ability to collect their debt when realizing the apartments.
Dror Feldman, Mizrahi Tefahot: "The construction start-up market provides less than 50,000 new apartments a year, and that does not meet the demand. When there is a surplus of demand, the economic recession does not cause a decrease in transactions either."
It refuses to address directly the data on arrears and deferrals in debt payments. "The Bank of Israel's directives regarding deferred payment arrangements have been extended until the end of the year, but this is not the end of the story. Customers who will need further deferral or payment can also do so at the beginning of the year. The borrowers, "she says.
Despite the growing uncertainty in the industry, and perhaps precisely because of it, banks continue to vigorously market mortgages to homebuyers. The market, banks explain, remains relatively stable. "At first we were surprised, but when we segmented the customer population, it became clear that mortgage recipients are characterized by a different profile from the general population in the economy," explains Tal Bar-El, head of the mortgage division at Leumi (+ 0.53% 1704). "A large part of those who go to the Knesset are people who were not candidates for a mortgage anyway - students, young people in temporary jobs and adults, a large part of whom have already received a mortgage and even returned it in full to the bank."
According to estimates, the strong demand for mortgages has continued in the last month, for which no official figures have yet been published. "This is a market that has been in short supply for many years," explains Dror Feldman, director of the mortgage sector in Mizrahi-Tefahot (2.01% 7022). "The construction start-up market provides less than 50,000 new apartments a year, and this does not satisfy natural demand. When there is excess demand, the economic recession does not cause a decline in transactions."
One of the reasons for stability in mortgage applications is the price per occupant program. The buyers of the apartments under it undertook to purchase in previous periods, and some of them won their apartment two or three years ago. Even if the economic situation of buyers has changed adversely in recent months, banks are making a special effort to go towards them. "In the case of a price per occupant, a special effort is made, since these are good customers with properties whose real value is high in relation to the volume of the loan. Customers also make an effort not to lose the big benefit," says Berliner.