After five years of annual double-digit growth in mortgages, new mortgages fell by 8% in 2011. The new mortgage market rose from NIS 19 billion in 2006 to NIS 54 billion in 2010, but fell to NIS 49.8 billion in 2011. Figures for the first quarter of 2012 point to a further drop to NIS 35-40 billion in new mortgages for the year as a whole.
2011 can be divided into two. In the first half, the monthly amount of new mortgages reached new heights, averaging NIS 4.6 billion a month. This figure fell to NIS 3.6 billion in the second half of the year. Excluding the effect of the closing of mortgages in process, the fall in loans was even greater, reaching NIS 3 billion a month in September-December - 35% less than in the first half of the year.
Regulatory intervention explains the turn-around. Since May 2010, the Bank of Israel vainly tried to stop the increase in mortgages, until, on April 27, 2011, Supervisor of Banks David Zaken issued a sweeping directive capping the variable interest component (prime rate, Consumer Price Index (CPI)-linked and foreign currency-linked) of new mortgages at 33% of the total mortgage. These especially cheap loans accounted for 76% of all new loans.
After a transition period, during which loans in process were closed, the amount of new mortgages began to drop. The social protest contributed to the process, as well as the sense of recession that brought the real estate market to a halt.
Despite the monthly volatility, the average mortgage changed little in 2011, at NIS 550,000-570,000.
For the second consecutive year, refinancing of mortgage fell in 2011, dropping 14% from 2010 to NIS 4.8 billion, two thirds of the amount in 2009.
Subsidized government mortgages to eligible people have become irrelevant in the past few years. They amounted to NIS 326 million in 2011, 33% less than in 2010, and just 15% of the amount in 2006. In late 2011, the interest rate was finally revised from 4% to 3%, which may lead to an increase in subsidized mortgages in 2012.
The irrational competition between the banks since Israel Discount Bank (TASE: DSCT) launched its mortgage subsidies in 2007 gave way to a modus vivendi between the banks. No bank now sought to win market share, and even Bank Hapoalim (TASE: POLI), which has a target to increase in mortgages, is focusing on its own customers.
As a result, the banks' aggregate profit on mortgage activity rose by 23.2% in 2011 to NIS 822 million. Except for Bank Hapoalim, the profit margins at all the other banks rose by double-digit rates. The banks' return on equity also rose, led by 16.7% at Bank of Jerusalem (TASE: JBNK) and 14.8% at Mizrahi Tefahot Bank (TASE:MZTF). First International Bank of Israel (TASE: FTIN) was the only bank not to report a return on its mortgage business.
Mizrahi Tefahot Bank, Israel's biggest mortgage bank, again reported the biggest profit from its mortgage operations in 2011: NIS 368 million, 26% more than in 2010, and 44% of all the banks' mortgage operations. Bank Leumi (TASE: LUMI) was in second place, with a profit of NIS 213 million, up 22% on 2010, and Bank Hapoalim was in third place, with a profit of NIS 94 million, up 1%.
Published by Globes [online], Israel business news - www.globes-online.com - on April 22, 2012
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