Healthy competition keeps mortgage rates low

The average spread on mortgages is less than half the average for credit in the banking system. Mizrahi Tefahot Bank has the highest spread on mortgages, and Bank Leumi and First International Bank of Israel have the lowest, according to a "Globes" analysis of the banks' financial reports for 2010.

The figures indicate that the average spread on mortgage loans (taking into account all loan plans) was 0.68% in 2010, while the average spread on credit was 1.2%. In other words, the margin is 43 basis points lower on mortgage loans than on regular credit. The figures also indicate that while the average spread on credit rose to 1.2% in 2010 from 1.09% in 2009, it was unchanged at 0.68% on mortgage loans. The figures confirm the claim by Governor of the Bank of Israel Prof. Stanley Fischer that the banks are granting mortgage loans at margins that do not reflect the risk. He told the Knesset Finance Committee a week ago that the spreads were very low. "It's enough for 0.5% of borrowers to become insolvent and banks will begin to lose money," he said.

There is a wide difference between the banks' spreads on credit, due to banks' policies, their customer mix, the proportion of buyers groups out of total credit, the proportion of loans to people eligible for Ministry of Housing discounts, and the matching of the average life span of the sources of funds for the loans. Mizrahi Tefahot Bank had the highest spread on credit, at 0.91% in 2010, up from 0.88% in 2009. The bank has the largest mortgage portfolio, averaging NIS 52.8 billion in 2010, and it has the lowest difference between its average spread on mortgage loans (0.91%) and on average credit (1.1%).

Union Bank of Israel had the second highest spread on mortgage loans, at 0.84% in 2010, up from 0.69% in 2009. Its average spread on credit was 1.09% in 2010. It had the smallest share of the mortgage market, with an average portfolio of NIS 5.4 billion in 2010.

Israel Discount Bank had the third highest spread on mortgage loans, at 0.76% in 2010, down from 0.77% in 2009. Its spread on credit was 1.48% in 2010, but this figure is distorted by the large proportion of credit granted by Israel Discount Bank of New York.

The spread on mortgage loans of Bank Hapoalim was 0.68% in 2010, up from 0.65% in 2009. The bank had the third largest average mortgage portfolio in 2010, at NIS 39.5 billion. The bank's average spread on credit varies widely, depending on the type of customer; it was 0.71% for households and 0.50% for private banking customers. The bank's average spread on credit rose from 0.9% in 2009 to 1.11% in 2010.

Bank Leumi, which had the second largest average mortgage portfolio of NIS 47.7 billion in 2010, had a spread on mortgage loans of 0.45%, down from 0.49% in 2009. The bank's average spread on credit was 1.22% in 2010.

First International Bank also had a spread on mortgage loans of 0.45% in 2010, up from 0.43% in 2009 - the lowest figure for that year. The bank's average spread on credit was 1.13% in 2010.

Source Globes