Are the mortgages at risk? The prime interest route has lost its attractiveness

"Those involved in the mortgage sector these days are experiencing permutations and changes. Banks report a significant increase in the level of risk in the market regarding the rate of financing from the mortgaged property (LTV) and the ratio of the repayment of the loan to income," writes Dodi Mayzlik, director of the mortgage department at Mercantile Bank, in a special review.

According to him, "the routes of a fixed interest rate that is not linked and changes every five years without linkage are currently the first priority in the loan mix, after in recent years the most popular route was linkage to the prime interest rate" (which this week reached a peak of 6.25% per year).

"According to the published data, after two years of high tide in the mortgage market, the banks are experiencing a significant decrease in performance – from NIS 13.4 billion in March 2022 to only NIS 4.6 billion in April 2023 – a 3.5 year low. The low performance in April is explained by the holiday month when activity was reduced.

"In view of the slowdown and the increase in interest rates, there is a growing demand for her mortgage not for the purpose of purchasing an apartment, but for needs such as paying off car loans, loans taken out with credit cards or loans from the workplace.

"Another phenomenon is the recycling of loans taken and the deployment of an existing long-term loan and the conversion of prime routes that have become more expensive to routes that allow a lower monthly repayment, even in a high interest environment."

Maizlik explains: "The customers often choose to split the loan between several banks and recycle the loan routes that became more expensive at a competing bank, which provides improved loan terms, and leave the other part of the loan with a low interest rate at the bank where the original loan was granted."