Starting in May 2022, Israeli citizens are grappling with increased economic burdens due to rising mortgage interest rates. According to data from the Bank of Israel, the monthly repayment has risen by an average of about 20% for all households, particularly affecting middle-class homebuyers, whose mortgage repayments have increased by around 21% over the past five years. Even households in lower-income percentiles are affected, as now their part of the mortgage owners is small, and the dream of homeownership is slipping away for many.
Meanwhile, the total amount of mortgages in Israel stood at approximately 508 billion NIS by the end of 2022, marking a 13.7% increase compared to 2021. As a result of the rising interest rates, the net incomes of the five largest banks increased by an average of over 50% in the last quarter of 2022 compared to the same period the previous year. The net profit also increased by an average of about 31% for these five major banks in 2022. These figures reflect an average return on equity of around 15%.
As a response to these challenges, the institute calls for several structural reforms that can, on the one hand, alleviate the economic burden on Israeli households and improve the financial literacy of vulnerable populations in this sector. On the other hand, these reforms aim to narrow the interest rate spreads of banks in Israel in the following ways.