Has the end of the banks’ mortgage repayment freeze programs, introduced at the outbreak of war, led to a jump in the number of mortgages in arrears? Bank of Israel figures show that, in October, the amount of mortgage loans in arrears rose by NIS 250 million to a new peak of NIS 3.37 billion.
The war that broke out in October 2023 immediately caused severe financial problems for many households, especially those in front-line settlements, or that were evacuated, or had breadwinners serving in the IDF reserves.
Whereas in the months preceding the war, the mortgage loans in arrears of 90 days or more were in the range of NIS 2.6-2.7 billion, by December 2023 the total reached NIS 3.28 billion.
The Bank of Israel reacted quickly. Two weeks after the outbreak of war, it instructed the commercial banks and mortgage banks to introduce relaxations for their customers, and to divide them into two groups.
The first group consisted of people living within 30 kilometers of the Gaza Strip, evacuees, first-degree relations of people killed, abducted, or missing in the October 7 attack, and army reservists. The second group consisted of all other customers. When the war in the north became more intense, residents of the north were included in the first group.
Those in the first group were offered at least two ways of easing the mortgage repayment burden. The first allowed borrowers to increase the number of repayments, so that the monthly repayment amount fell. The second allowed them to defer repayment of the mortgage balance, and to take a four-year interest free loan covering the deferred amount.
The remaining customers, in the second group, were also offered relaxations, but on less good terms.
The immediate result of the implementation of these programs was that borrowers in the second group who seized the opportunity to freeze mortgage repayments were liable to incur a rise in the monthly repayment once it resumed, because of the reduction in the number of payments remaining until full repayment, and also because of interest costs of extending the mortgage period.
The mortgage banks expanded the benefits, and in some cases did not charge interest for the period in which repayments were frozen, or offset the debt for this period.
The result was that the aggregate of mortgage repayments in arrears fell from the December 2023 peak to NIS 3.21 billion in September this year.
Against that background, the jump by NIS 250 million in October seems surprising. It represents an 8% rise within one month, and a 26% rise since September 2023, just before the war. Although the amount does not put the banks at risk, it does mean that about 250 additional households are unable to meet their monthly mortgage repayments (calculated according to the current average mortgage).
Historically, mortgage arrears have been most common on properties costing up to NIS 1.2 million. In October, they accounted for 67% of the total.
What stands out recently, however, even before the war, is growing difficulties among buyers at intermediate (NIS 1.2-2 million) and high (NIS 2-4 million) prices.
At the start of 2023, mortgage arrears among buyers of properties at intermediate prices represented 13% of total arrears. In 2024, that proportion has reached 19%. For buyers of homes costing NIS 2-4 million, the proportion of the total arrears was 6% in 2023, but in recent months has been around 9%. The proportion of buyers of luxury homes (NIS 4 million upwards) among borrowers in arrears has remained unchanged at 2-4%.
The problem seems to be with people who took high mortgage loans to buy homes, whose situation deteriorated when interest rates rose in 2022-2023, and for whom the war added a further blow, making it difficult for them to keep up their repayments, with no connection to residence in areas directly affected by the war.
So what happened in October? Apparently many mortgages were unfrozen, and some of those who froze their repayments a year ago are finding it difficult to make them again.
Jonathan Berliner, chairman of the professional committee of the Mortgage Advisers Association, told "Globes": "The Bank of Israel’s plan was to allow freezes of mortgage repayments in the hope that in the future the situation would be better.
"They let people freeze their mortgages almost freely, and sufficed with the explanation that they were finding it difficult to meet their repayments during the war, without any further explanation being required.
"The explanation is important, because had people said that they wanted to freeze their mortgage ‘because I have a problem meeting the monthly repayments,’ that would have had to be reported to the Bank of Israel as problematic credit.
"But if there’s no need to provide explanations, it’s easier for the bank to freeze the mortgage. So they did, and kept extending the freeze in the hope that the war would end and the situation would improve, but that didn’t happen, and gradually the reality came to light, that there are people in difficulties over their mortgage repayments."
Another risk: Balloon loans
Is the mortgage market developing a new trend? The supplementary data don’t make the picture any clearer. The amount of frozen mortgages in October was slightly higher than before the war, and was 60% below the peak reached 10-11 months ago. In other words, people are not freezing heir mortgages as much as they were.
On the other hand, during the war period there has been a rise in "bullet" and "balloon" deferred repayment mortgages, chiefly attributable to financial offers by real estate developers. These mortgages too create a degree of uncertainty in the market.
The Bank of Israel said in response, "The level of arrears in the figures on mortgages in Israel is low, both historically and by international comparison. There has been a very small rise at the extreme end, about which it still can’t be said whether it represents a rise or continued stability. The Banking Supervision Department at the Bank of Israel monitors developments all the time."
The Bank of Israel, however, looks at the banking system and its resilience, and, as emerges from the figures cited, the growth in arrears does not endanger the system, as the balance in arrears represents 0.6% of the total mortgage loan balance. In the past there have been years in which the proportion of loans in arears was higher. What should concern us is the situation of households, and we will have to wait to see how arrears stand in the coming months in order to know to what extent their situation is worsening.
Published by Globes, Israel business news – en.globes.co.il – on December 10, 2024.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.
