A couple of parents with a girl in a new apartment/ShutterStock
Every difficult period brings with it new opportunities.
It's no secret that the contractors are in some kind of crisis since the first interest rate increase in April 2022. The numbers speak for themselves - the contractors are not selling as much as they wanted, and as of today there remains a large stock of apartments that have not been sold.
On the other hand, it should be remembered that there were no price drops here as expected by the buyers who were waiting on the fence.
"The contractors, and one can say in their wisdom, did not lower prices drastically, because they were simply afraid of a rolling snowball effect that would go on and on," explains
Moti Shoika, an economist, senior mortgage consultant at Kedemi Yaots Mukhtaot
.
"On the other hand, they granted a variety of benefits, exemption from the measure of construction inputs, fittings and furniture for the whole house, etc. deferred payments and more. 20-80 transactions are the hit of the last year."
According to Shoika, "on the face of it, everyone is satisfied with this deal. The contractor succeeds in selling and shows the lending bank that he meets the conditions he set for him when receiving the financing, the buyers now pay a relatively small amount and sometimes it is also exempt from the construction input index, and thus they avoid high interest rates."
"So to the question of whether these are worthwhile benefits, the answer is not clear-cut. For the most part, yes, these can be great deals, but on one condition - the buyers are asked to know for sure how the deal will end."
What it means?
According to Shoika, "Let's say an apartment worth NIS 2 million. The buyers paid the contractor an amount of NIS 400,000 in equity, according to the aforementioned 20-80 deal, and an exemption from the index. They will pay the rest of the amount, which is NIS 1.6 million, in a few years when they receive a key If the money comes from the sale of an existing apartment for the same amount, it turns out that they are not dependent on getting a new mortgage. So far everything is excellent, they know how to start the deal with the same equity and they also know with almost certainty where the balance of the debt to the contractor will come from in a few years, since as Apparently there will not be a dramatic price drop in the market."
"However, unfortunately, not all families think this way. In recent weeks, we have come across couples who purchased an apartment using this method a year or two ago and now they are having a problem with how to complete the deal," Shuika explains.
"For example, a couple with two children started with an identical deal about two years ago, when the couple's salary was NIS 20,000 gross and they planned to take a million NIS from their mortgage. This is an amount that is also on the edge in terms of the conditions for taking out a mortgage, and indeed, unfortunately for the family, one of the couple was fired from his workplace unexpectedly a few months ago, and now the banks refuse to give a mortgage because they do not meet the conditions in terms of household income."
"In this specific case we were able to help the couple, the parents of one of the couple entered as guarantors for the mortgage. In another case we could not help the couple, and the couple had to cancel the contract and pay the agreed compensation that appeared in their purchase contract with the contractor."
Key parameters to consider before taking out a mortgage
• Life insurance
- every mortgage holder is required to have life insurance for the mortgage, what will happen if over the years one of the spouses, God forbid, becomes ill and now cannot get life insurance, how will the couple get a mortgage?
• Financial difficulty
- as we saw in the above example, God forbid, over the years one of the spouses may run into difficulties at work, or in their private business. In this situation, what was true for them three years ago is not true now when taking out a mortgage.
• Divorce
- we need to talk about this as well Today, the average in the State of Israel for divorce is 47.3% according to the CBSE for 2023. What will happen if, in the years before taking out the mortgage, the couple divorces and they now have to take out a joint mortgage?
• The VAT increase
- another issue that is already a fait accompli. In January 2025, the VAT rate will increase by 1% according to the Finance Committee's decision, therefore the unpaid balance of the payment to the contractor will also increase by the same rate.
In addition to these, there are many other issues that can make it difficult to take out a mortgage.
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These are the possible solutions
"Let's go back to the same couple from before who bought an apartment for 2 million and already paid the contractor NIS 400,000 upon signing the contract. The same couple can go to the bank and get a 75% mortgage at the stage of signing the contract. However, please note - at this stage, for example, they can withdraw from the total amount of the mortgage 10 % only (or any other amount he deems appropriate), and start paying for it every month from the moment the contract is signed. In our case, it is a monthly payment of more or less NIS 600 per month, an amount that the couple will probably be able to meet in addition to paying the rent on the apartment they live in. Live until moving to the new apartment."
"In the banking language, this is called - opening a line of credit. We opened a mortgage-type credit line as soon as we signed a mortgage, and withdrew a certain amount of money. The bank will continue to give us the balance of the money and it doesn't matter what our financial situation is during the next withdrawals."
"Furthermore, if the interest rates decrease over time then they will benefit from that decrease, therefore taking a small amount of mortgage now is beneficial to the buyers and gives them an insurance certificate to complete the transaction," Shuika concludes.
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