20-month record in mortgage borrowing – but the market warns: "It's an optical illusion"
Mortgage volume reached 11.5 billion shekels in July, an 8% increase year-on-year. Experts warn that these figures reflect past transactions and create a misleading sense of market health.
While the industry predicts an imminent decline in the mortgage market, for now it refuses to calm down: the volume of mortgages taken in July amounted to approximately 11.5 billion shekels — an increase of 8% compared to July of last year, according to data from the Bank of Israel published on Wednesday.
In the last four years, there was only one month with a higher volume of mortgages — in December 2024, just before the VAT increase to 18%, a record of 13.8 billion shekels was recorded. Summer months are characterized by relatively high activity, and according to the July data, it is evident that the record for the summer months will be broken again.
Yet, there remains a gap between the volume of activity in the mortgage market and the stagnation of the real estate market. The main explanation is that many transactions in the mortgage market are the product of older real estate deals, where the apartment purchase was done in a "contractor loan" format (various 20-80 loans) — meaning the mortgage is taken only at the end of construction rather than in stages.
Starting from 2027, the rate of these maturing transactions is expected to decrease, and as long as demand for purchasing apartments does not increase, the mortgage market is expected to cool down significantly. The Mortgage Consultants Association calls the data an "optical illusion that could lead to dangerous complacency":
"Today's big numbers tell mainly the story of yesterday's transactions. To understand what is really happening today in the housing market, one must separate the credit volumes in the banks from the actual state of demand on the ground."
According to July data, the recovery in the prime track (where the interest rate is linked to the prime rate) continues. Mortgages linked to the prime rate were taken in the amount of about 2.2 billion shekels — about 19% of total mortgages, compared to only 9% in July of last year. While this is still low compared to the 39% seen before interest rate hikes, the public is gradually returning to the prime rate. Meanwhile, index-linked tracks accounted for only 10% of total mortgages — the lowest figure in many years.
In contrast to the growth in the mortgage market, there was a moderation in balloon loans, which amounted to 1.6 billion shekels (13.9% of total mortgages) — the lowest figure since November 2023. This is likely due to recent interest rate cuts, rather than a decrease in contractor promotions, which continue to target potential buyers.
