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Mortgage taking stays strong in April despite holidays

Mortgage taking stays strong in April despite holidays

According to a senior banking source, playing with demand only creates a turmoil, which drives home prices up. The solution is supply.

April was a strong month for new mortgage taking. In a climate of record-low interest rates, sources banking estimate that between NIS 4.2 and 4.4 billion NIS in new mortgages would have been taken by the end of the month. Albeit this is slightly below the average of NIS 4.5 billion over the past year, it’s certainly is a big amount considering there are so many holidays in April. This figure represents an increase from April 2014, when under NIS 4 billion in new mortgages was taken.

The high mortgage taking figure shows how dynamic the real estate sector currently is. The market peaked in March when new mortgage taking reached NIS 5.6 billion. This trend began in December, when former Minister of Finance Yair Lapid’s 0% VAT plan on new homes was cancelled. During the month of January, NIS 4.57 billion in new mortgages were taken in, and in February NIS 4.62 billion.

According to sources within the banking industry, this boom will continue in the next few months. A senior banking official said that the way things seem to be at the moment, 2015 is certainly looking like a record year in the sector. Last year there was a fall in the number of deals, but towards the end of the year the numbers skyrocketed. He also mentioned that this situation is influencing prices and pushing them up, and it was reasonable to assume price would rise this year.

The mortgage taking figures are also increasing because of people with state entitlements who are recycling their mortgages in the program launched several months ago by the Ministry of Construction and Housing. This is bringing new money to the banks. However, the banking sources are emphasizing that these are not dramatically high numbers. During the month of March, NIS 600 million were recycled out of a possible NIS 17 billion.

The banking sources added that the response to the government program hadn’t been very good, despite the attractive offer, and that the more sophisticated public had probably already implemented the recycling, while many others were remaining indifferent.

Senior executives within the banking industry believe that the plans of Minister of Finance elect Moshe Kahlon will influence the real estate and mortgage market in the coming months. Kahlon is expected to raise taxes on real estate purchases by investors. They also said that publication of such plans were likely to cause investors to rush into the real estate market in the short term to beat any possible restrictions.

According to those same executives, investors will be dragged into the market, which could create a frenzy and apply additional upward pressure on prices with no real solution for lowering them. They said that playing with demand didn’t create viable solutions, and that the solutions were on the supply side. They added a long-term strategic solution with targets had to be be presented in order to restore the public’s faith in government control, and only when the public saw things moving, for example the planning committees working faster, and supply growing, would the market calm down. They concluded that dealing with the demand side using headlines in mainstream media only harmed the situation.