Mortgage borrowing in Israel soared by dozens of percentages in June to its highest level in the last 12 months. The interest in real estate has bloomed despite climbing prices, and in spite of the fact that mortgage interest rates have begun to rise again.

The Marker reveals that Israeli banks issued a total of NIS 3.5 billion in new mortgages during the month of June (not including refinancing through the issuing bank of the original mortgage). Mortgages issued between January and May of 2009 averaged a total of NIS 2.3 billion monthly. Approximately NIS 14 million in mortgages have been issued since the beginning of the year.



According to some sources in the mortgage sector, the increase in mortgage borrowing in June stems from of a growing perception that the worst of the economic crisis has been left behind.



The record low interest rate set by the central bank, which now stands at 0.5%, has led to a move from index-linked to prime interest rate-based borrowing. The Marker estimates that prime interest rate-based mortgages accounted for 70%-75% of all mortgages in the second quarter of this year, compared to 45% during the parallel period in 2008.



The Marker quotes Excellence analyst Terence Klingman, who blames the Bank of Israel's monetary policy for creating a real estate bubble. This bubble is discernable in many types of assets, but most obvious in real estate.



Klingman stated that in spite of growing unemployment levels and shrinking gross domestic product, housing prices continue to rise, mainly due to an environment of negative real interest rates. Klingman stated that Israel is one of the few countries where inflation is high while interest rates are insignificant.