Press conference, Bank of Israel Governor Amir Yaron interest rate increase/Bank of Israel
The Bank of Israel has put a spotlight on the change in household debt under the burden of high interest rates, revealing how many of us continue to live in financial poverty, and pay dearly for it.
His examination shows that households in localities ranked high in the socioeconomic index worked to reduce their monthly repayments, through early repayment of loans and avoiding taking out additional credit.
Compared to households from localities ranked lower in the socioeconomic index, some of whom have even increased their debt burden and the monthly repayments they pay for it, beyond the increase resulting from only the increase in interest.
According to the bank's data, approximately 62% of the people registered in the credit data database as of April 2022 were debtors (mortgage, consumer loan, utilization of a credit line and overdraft in the current account), while by September 2023, at the same time as the interest rate increase, the percentage of consumer debtors has already decreased by approx. -3%, and the rate of mortgage holders decreased by about 1%.
In terms of taking on additional debt, the bank found that "an examination of the socio-economic rating of the individual's residence shows that the tendency to take on consumer debt or take an overdraft decreases as the socio-economic rating of the borrower's residence increases.
These differences are evident both in April 2022 and during the transitions that took place until September 2023."
In addition to the fact that those with high incomes could afford to take out fewer loans, Bank of Israel data also show that they reduced payments on existing debts.
The well-established closed loans, the poor took additional credit/screenshot, system voila!
For example, in the field of mortgages, the bank found that "the probability that more affluent households reduced their exposure to the prime component is greater: this is expressed in the coefficients of the economic-social rating variable of the borrower's residence and in the coefficient of the variable relating to the total expenses on credit cards (without interest).
"Also found The higher the outstanding balance of the debt before the beginning of the monetary tightening was, and accordingly the greater the expected impact of the monetary tightening on the borrower, the greater the chance that the same borrower will reduce his exposure to the increase in interest rates."
That is, more financially established households, which are required for higher than average mortgage repayment amounts, Acted during this period to pay off mortgages or their turnover, compared to the less economically established households.
How much less? According to the bank's data, approximately 8% of mortgage borrowers reduced the total scope of their mortgage between April 2022 and September 2023, when the weight of borrowers who reduced their mortgage exceeds 5 % to 12% the higher they are placed in the socio-economic ranking of their place of residence.
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A similar phenomenon can also be seen in the field of consumer credit, in which the bank found that "the rate of increase in the actual monthly repayment decreases with the increase in the socio-economic rating of the borrower's residence, and this is also because borrowers who live in settlements ranked in a low socio-economic rating have not significantly changed their behavior "
The latter on average increased their debt similar to its growth in previous periods, which caused an increase in their monthly repayments.
"In contrast, borrowers living in settlements with a high socio-economic ranking did not increase the debt, or even decreased it (this is in contrast to previous periods). Residents of settlements ranked with a low socio-economic ranking extended the average period for repayment of the debt, which mitigates somewhat the effect of increasing The debt for the refunds".
It should be noted that there is nothing new under the sun in the findings of the Bank of Israel inspection, and that although the latter does not explain the reason for the formation of the gap, it refers to the economic literature which finds, among other things, that "the tendency of a household is correlated with its socio-economic situation, its financial situation, its financial literacy and his bargaining power with the lender."
The Bank of Israel, in this sense, is somewhat escaping its responsibility since it is the supervisor of the banking system that forms the basis of public debt and can, for example, force the banks to contact every consumer who has taken out a mortgage or loan from them and offer, for example, a mortgage cycle while explaining the savings they expect as a result .
In addition, it should be remembered that those with a high income can afford early repayment of debt while those with a low income cannot, and the Bank of Israel has not yet created a solution for this issue either.
More on the same topic:
poverty
Bank of Israel
Loans
mortgage
Bank of Israel interest rate
The interest rate in the economy