Did the end of banks’ mortgage payment freeze programs, which began with the outbreak of war, lead to a jump in the number of delinquent mortgage loans? Bank of Israel figures indicate that in October, the volume of delinquent mortgage loans rose by NIS 250 million to reach a new peak of NIS 3.37 billion.
The war that broke out in October 2023 immediately caused severe financial problems for many families, especially those living in front-line settlements, which had been evacuated, or who had a breadwinner serving in the IDF reserves.
While in the months before the war, mortgages delinquent by 90 days or more were in the range of NIS 2.6-2.7 billion, by December 2023, the total had reached NIS 3.28 billion.
The Bank of Israel’s reaction was quick. Two weeks after the outbreak of war, it issued instructions to commercial banks and mortgage banks to provide facilities to their customers, dividing them into two groups.
The first group consists of people living within 30 kilometers of the Gaza Strip, evacuees, first-degree relatives of people killed, kidnapped or missing in the October 7 attack, and army reservists. The second group consists of all other clients. When the war intensified in the north, the people of the north were included in the first group.
Members of the first group were offered at least two ways to reduce their mortgage payment burden. The first allowed borrowers to increase the number of repayments, so that the monthly repayment amount decreased. The second allows them to defer payment of the mortgage balance, and obtain an interest-free loan for four years covering the deferred amount.
The remaining clients, in the second group, were also offered facilities, but on less good terms.
A direct result of the implementation of these programs was that borrowers in the second group who took advantage of the opportunity to freeze mortgage payments were likely to incur a rise in monthly payments once they resumed, due to the reduced number of installments remaining until full payment. Repayment, also due to the interest costs of extending the mortgage term.
Mortgage banks expanded interest, and in some cases they did not charge interest for the period in which installments were frozen, or compensate the debt for this period.
The result was that total late mortgage repayments fell from a peak in December 2023 to NIS 3.21 billion in September of this year.
Against this background, the NIS 250 million jump in October seems surprising. It represents an 8% rise in one month, and a 26% rise since September 2023, just before the war. Although this amount does not put banks at risk, it means that about 250 additional families are unable to pay their monthly mortgage payments (calculated according to the current average mortgage).
Historically, mortgage arrears were most common on properties costing up to NIS 1.2 million. In October, they made up 67% of the total.
But what stands out recently, even before the war, is the increasing difficulties between buyers at medium prices (1.2-2 million shekels) and high prices (2-4 million shekels).
At the beginning of 2023, mortgage arrears for buyers of real estate at average prices represented 13% of total arrears. In 2024, this percentage reached 19%. For buyers of homes costing NIS 2-4 million, the percentage of total arrears was 6% in 2023, but in recent months it has reached about 9%. The percentage of luxury home buyers (4 million shekels and above) among borrowers with arrears remained unchanged at 2-4%.
The problem appears to be people who took out high mortgage loans to buy homes, whose situation deteriorated when interest rates rose in 2022-2023, and for whom the war added another blow, as it made it difficult for them to continue making their payments, with no connection to housing. In areas directly affected by the war.
So what happened in October? It is clear that many mortgage loans have been unfrozen, and some of those who froze their payments a year ago are finding it difficult to pay them again.
“The Bank of Israel’s plan was to allow a freeze on mortgage payments in the hope that the situation would be better in the future,” Jonathan Berliner, head of the Professional Committee of the Association of Mortgage Advisers, told Globes.
“They allowed people to freeze their mortgages almost freely, just explaining that they were having difficulty making their payments during the war, without needing any other explanation.
“The explanation is important, because if people had said they wanted to freeze their mortgage ‘because I have trouble making the monthly payments’, it would have been necessary to report it to the Bank of Israel as problematic credit.
“But if there is no need to provide explanations, it is easier for the bank to freeze the mortgage. So they did, and they continued to extend the freeze in the hope that the war would end and the situation would improve, but that did not happen.” Gradually the truth emerged, which is that there are people who are facing difficulties in paying their mortgage payments.”
Another risk: balloon loans
Is the mortgage market developing in a new direction? Supplementary data does make the picture any clearer. The volume of frozen mortgages in October was slightly higher than before the war, and was 60% lower than the peak reached 10 to 11 months ago. In other words, people are not freezing heirs’ mortgages as much as they used to.
On the other hand, the war period witnessed a rise in deferred “bullet” and “balloon” real estate loans, mainly due to financial offers made by real estate developers. These mortgages also create a degree of uncertainty in the market.
The Bank of Israel said in response: “The level of arrears in mortgage numbers in Israel is low, both historically and in international comparison. There has been a very slight increase at the high end, which cannot yet be measured.” He said whether it represents a rise or a continuation of stability. The Banking Supervision Department at the Bank of Israel is monitoring developments all the time.
However, the Bank of Israel looks at the banking system and its resilience, and as can be seen from the aforementioned figures, the growth of arrears does not put the system at risk, as the balance of arrears represents 0.6% of the total balance of mortgage loans. In the past there were years when the loan ratio in the regions was higher. What concerns us is the situation of families, and we will have to wait to see how the arrears reach in the coming months to know the extent to which their conditions will worsen.
Published by Globes, Israel Business News – en.globes.co.il – on December 10, 2024.
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