Odiel Malchi
Tailored Financial Solutions

Why a Post-COVID-19 Mortgage Is the Right Move

When Israel was first hit by COVID-19, banks faced uncertainty, as did the rest of the economy. As a result, the cost of securitization for financial institutions increased, making the cost of capital for banks more expensive. Within the first two weeks of the outbreak, Israeli banks raised mortgage rates, mainly because it became riskier for the banks to give mortgages. The unemployment rate rose from 4% to 27%, 88% of the workforce was furloughed, and 7.2% was laid off.

As Israel continues to recover from COVID-19 we have seen slow improvement. Businesses have begun reengaging the workforce and the level of uncertainty has begun to dissipate. In early May, Dr. Hedva Ber, the Supervisor of Banks at the Bank of Israel, sent an official letter to all banks requesting mortgage rates to be lowered. By the end of June, most banks followed suit and lowered their rates, which are now lower than prior to the pandemic.  As such, it is recommended that those in the process of obtaining a mortgage ask their mortgage broker for updated rates before the mortgage is finalized. In 2018, just a few months into his new role as Governor of the Bank of Israel, Professor Amir Yaron raised the economy market rates from 0.1% to 0.25%. On April 26, 2020, due to the harsh outcome of COVID-19 on the economy, Yaron lowered that rate back down to 0.1%. The market rate is currently at its all time lowest level..

Additionally, the Bank of Israel is now allowing homeowners to take out All-Purpose mortgages of up to 70% of the property value, though until now it was capped at  50% . As a result, bank loans can be consolidated with a mortgage for up to 25 years at a lower rate.

From a real-estate perspective, this is the ideal time to buy a house. Due to the dramatic rise in unemployment, there are fewer people who are  eligible for mortgages resulting in a drop in the number of potential buyers. Although in Central Israel and more populated cities, prices have not dropped substantially, room for negotiations have opened up significantly. With more sellers than buyers, this has created a buyer’s market. Deals can be found, especially in periphery cities in Southern and Northern Israel.

Despite construction workers being declared essential, and the government’s desire to continue building, many projects have been slowed down or have come to a complete halt. Thus, in the near future, the supply of new apartments will not meet the demand, and prices will rise.

Additionally,  since 2015, prices of homes in Israel have not increased to the same extent that they did  in the past,  due to Moshe Kahlon’s courageous Buyer’s Price Program (Mechir Lamishtaken). However, this program cost the government more than initially anticipated, and therefore, with Yisroel Katz taking over as Finance Minister under the newly formed government, the program is expected to change. Reducing the discount for young couples will have a significant long-term impact and price increases are expected.  All of these variables have created the perfect opportunity to buy and mortgage a property now.

About the Author
As a mortgage and financial consultant, Odiel Malchi understands the complexities of Israeli financial regulations. As an oleh himself, he is perfectly suited to walk new immigrants through this confusing process. Odiel received a BA in business & MBA in finance from Machon Lev (JCT), working as a consultant in banks specializing in mortgages for business and foreign clients and has since started his own business catering to the English-speaking community.
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