In an era where the world is becoming a global village, international influences permeate almost every area of our lives, and the mortgage market is no exception. Globalization, with its free flow of information and capital, directly affects the Israeli economy, and in particular the way we purchase apartments.
The mortgage market in Israel is dynamic and complex, constantly changing in accordance with global trends and local policies. Today, more than ever, it is important to understand the forces operating in the international arena in order to make informed decisions in the field of mortgages. Whether you are first-time homebuyers or seasoned investors, awareness of global influences will help you navigate the changing market safely and secure your financial future.
How Do Global Trends Affect the Mortgage Market in Israel?
The mortgage market in Israel is directly affected by global economic trends, which affect interest rates, inflation, and housing prices. Understanding these effects is essential for proper financial planning and choosing the most suitable mortgage for you.
Global Interest Rates and Mortgage Rates in Israel:
The global interest rate, especially that of the central banks in the US and Europe, directly affects the interest rate in Israel. When the interest rate in the world rises, the Bank of Israel tends to raise the interest rate as well in order to maintain the stability of the shekel and prevent capital flight. As a result, mortgage rates in Israel rise, which makes the monthly repayment more expensive and reduces the public’s purchasing power.
Global Inflation and Index-Linked Mortgage Tracks:
Global inflation affects inflation in Israel, especially on imported goods and services. When inflation rises, mortgage tracks linked to the index become less attractive, as the monthly repayment increases according to the rise in the index. Therefore, in times of high inflation, many prefer fixed or variable unlinked interest rate tracks, in order to avoid uncertainty.
The State of the Global Economy and Housing Prices in Israel:
The state of the global economy affects housing prices and the demand for mortgages in Israel. In times of global economic growth, there is a tendency for housing prices to rise, as a result of an increase in foreign investment and an increase in demand from local investors. On the other hand, in times of global economic crisis, housing prices may fall, and the demand for mortgages decreases due to economic uncertainty.
Examples from Recent Years:
In the years 2022-2023, the Bank of Israel sharply raised the interest rate from a level of 0.1% to 4.75%, as part of an effort to stabilize inflation and return it to the target. A study by the Bank of Israel showed that the interest rate hike significantly affected private consumption, especially among households with low incomes and a high monthly repayment ratio.
In addition, the sharp decline in the volume of new mortgages in 2023, as mentioned earlier, was mainly due to the rise in the Bank of Israel’s interest rate and a slowdown in global economic activity. Despite this, some recovery was recorded from the end of 2023, partly due to contractor benefits and priority transactions before the VAT increase, which highlights the dynamics of the market.
In order to understand these effects in depth, it is recommended to examine the mortgage market in Israel regularly and keep up to date with the changes taking place in the global and local economic arena.
What Are the Unique Characteristics of the Israeli Mortgage Market Despite Global Influences?
Despite the significant global influences, the mortgage market in Israel maintains a number of unique characteristics that affect the way we approach the issue of apartment purchase. Knowing these characteristics will help you make more informed decisions and take advantage of the unique advantages of the local market.
Structure of Mortgage Products in Israel:
One of the prominent features of the mortgage market in Israel is the complex structure of mortgage products. Unlike many countries where a single and simple track is common, in Israel the mortgage is composed of a mix of different tracks, such as a fixed interest rate track, a variable interest rate track, an index-linked track, and a prime track. This mix allows for greater flexibility in adapting the mortgage to personal needs, but also requires a deeper understanding of the risks and benefits of each track.
The Unique Borrower Profile in Israel:
The borrower profile in Israel is different from many other countries. For example, a significant percentage of mortgages in Israel are for investment apartments, where investors finance the monthly repayment from rent. In addition, only about 38% of privately owned apartments have a mortgage, which indicates a relatively high rate of ownership of apartments without mortgage debt.
Competition Between Banks in Israel:
The mortgage market in Israel is characterized by fierce competition between the various banks. Each bank offers a variety of tracks, interest rates, and mixes, and sometimes there are significant gaps between the different offers. This gap can reach tens of thousands of shekels over the life of the mortgage, so comparing offers is critical to achieving the best terms.
Regulation and Consumer Protection Measures:
The State of Israel takes various regulatory measures to protect consumers in the mortgage market. These measures include restrictions on the financing rate, disclosure requirements by the banks, and supervision of the activities of mortgage advisors. The purpose of the regulation is to ensure that the mortgage market is fair and transparent, and to prevent exploitation of inexperienced borrowers.
What Challenges and Opportunities Does the Mortgage Market in Israel Face in the Global Era?
The mortgage market in Israel faces a number of significant challenges in the global era, including rising interest rates, the high cost of living, economic uncertainty, and frequent regulatory changes. These challenges make it difficult for households to plan their financial future and may lead to an increase in repayment arrears.
However, in the global era there are also new opportunities. Mortgage refinancing options allow borrowers to improve their loan terms, the development of professional mortgage advice helps customers make informed decisions, and financial technology (FinTech) solutions offer new tools for managing the mortgage and saving on expenses.
Summary: Navigating the Global Israeli Mortgage Market
The mortgage market in Israel, as we have seen, is greatly influenced by global trends, but also maintains unique characteristics. Understanding the key characteristics of the market in the global era is essential for making informed and careful decisions.
When taking out a mortgage, it is recommended to compare prices between the different banks, consider a diverse track mix for risk diversification, and carefully examine the long-term repayment ability. It is also recommended to consult with a professional mortgage advisor, who can help you navigate the complexities of the market and adapt the mortgage to your personal needs.
Looking ahead to the future of the mortgage market in Israel in a global context indicates continued dynamism and frequent changes. Therefore, it is important to stay informed and act with caution to secure your financial future.
