Bank Hapoalim to halt mortgage rate hikes for over 10,000 first-time homeowners

A day before the Bank of Israel is expected to hike borrowing costs for a seventh consecutive time, Bank Hapoalim Ltd. announced that it will not adjust mortgage rates upwards for more than 10,000 current homeowners who face difficulty in repaying their mortgages.

Since the Bank of Israel started to increase its benchmark lending rate from a record low in April, home borrowing costs have risen steadily. The majority of mortgage lending in Israel is set at a variable rate, which rises and falls according to interest rate levels announced by the Bank of Israel.

“We have made a decision to embark on an unprecedented proactive move to freeze the increase in the interest rate for over 10,000 customers who, in our assessment, have suffered the largest increase in repayments in recent months,” said Hapoalim CEO Dov Kotler in a statement. “We are attentive to our customers’ difficulties and are proud to be the first in the banking system to come out with such a move.”

Hapoalim, one of Israel’s top two banks, said that for homeowners who have difficulty in making their monthly mortgage payments, the current prime rate will remain at 4.75% and will not be raised even if the Bank of Israel hikes interest rates on Monday.

Israel’s central bank is expected to increase the benchmark rate by 50 basis points on Monday to 3.75% to a new 14-year high in a move to rein in inflation. In April policymakers had started raising the rate from an all-time low of 0.1%, where it had remained since 2018. The Bank of Israel has accelerated the pace of rate hikes in recent months in a bid to bring inflation back within the government’s 1% to 3% annual target range.

Hapoalim said the move to freeze mortgage rates will be carried out regardless of the magnitude of the interest rate increase that the Bank of Israel is expected to announce tomorrow. The benefit will be valid for one year for existing customers who have taken out a mortgage for over 60% of the value of their first home that is linked to the prime rate.

Additional criteria for eligibility is that customers made monthly mortgage payments of under NIS 5,000 as of April 1, before the central bank initiated the cycle of interest rate increases; and their total monthly mortgage repayment has grown since April by more than NIS 400.

For customers who meet the criteria, the change will take effect automatically and they will be notified by Hapoalim. The mortgage rate freeze applies solely to the expected interest rate increase on January 2. In the case of further interest rate hikes during 2023, they will be applied to monthly repayments accordingly, Hapoalim said.

Moshe Gafni, head of the Knesset’s Finance Committee, welcomed Hapoalim’s move and called on all of banks to follow and and not raise the mortgage rate. Back in November, Gafni proposed a law that would put a freeze on climbing mortgage rates as borrowing costs went up.