Fewer Israelis are behind on mortgage payments - this does not mean their situation has improved

The Bank of Israel data published yesterday, which points to a wave of refinancing alongside a decrease in the percentage of mortgage delinquencies, are figures that are apparently supposed to indicate a recovery of households. When the percentage of mortgage delinquencies spikes, headlines talk about high risk and non-compliance with repayments. When the data is low, it must be said that the Bank of Israel has probably done a good job. Banks are required to conduct more accurate underwriting for their clients, one that also takes into account the possibility of future layoffs and inability to meet repayment capacity.

Avi Yusufov, Deputy Chairman of the Mortgage Consultants Association, told ice: "The July data is interesting precisely because of the apparent contradiction between them." According to him, "On one hand, the average mortgage continues to rise, from 1.098 million shekels to 1.117 million shekels. On the other hand, the delinquency rate dropped from 0.66% to 0.63%."

The refinancing part is very interesting. In July, a record of refinancing was recorded that we have not seen here since the end of 2023. This is a figure that correlates with the interest rate cut, after it rose aggressively starting from April 2022. Why do people refinance? Because the interest rate is falling, it is lower, and if they refinance the mortgage, the monthly payment will decrease. On the other hand, when the interest rate falls, people refinance the mortgage and this is considered a new loan.

In his opinion, a significant part of the explanation lies in what happened in the market over the past year. People's repayment capacity has decreased, not because of a drop in wages, but mainly because of the high cost of living in Israel. When there is less money in the pocket, people want to reduce the monthly payment. The interest rate cut also helped. "The Bank of Israel's interest rate cut allowed quite a few borrowers to perform mortgage refinancing and reduce the monthly payment. At the same time, we see more households that have consolidated existing loans into the mortgage, spread the debt over a longer period, and reduced the monthly burden," he adds.

What does this do in the long term? Yusufov emphasizes that "the debt itself does not disappear, and sometimes its total cost over the years even increases, but for a family that is under cash flow pressure, reducing the monthly payment can be the difference between meeting payments and entering delinquency."

About a month ago, we reported a jump of over 30% in the number of Israelis taking out a high mortgage. It turns out that the awakening in the housing credit market has done its part. According to Bank of Israel data, one can learn quite a bit about the distribution of financing rates and the level of risk that borrowers take upon themselves. As a reminder, about half of Israelis are currently paying a mortgage of nearly 40% of their salary - and this stands in complete contradiction to the recommendations, which speak of up to 30% only.

Let us recall that in July, when the volume of mortgages jumped to 11.056 billion shekels, which is an increase of 24%, the percentage of delinquencies dropped dramatically to 0.63%, with the volume of those behind on mortgage payments dropping to 4.239 billion shekels - the lowest figure since the beginning of the year, along with January.

Regarding the decrease in mortgage delinquencies, he adds: "The decrease in delinquencies is definitely a positive figure, but I would be wary of interpreting it as proof that the economic situation of all households has improved. Part of the improvement also stems from the ability to readjust the debt structure to the family's economic reality and create breathing room for it."