beersheba real estate 311.
(photo credit: Courtesy)
In another effort to stem the surge in property prices and prevent the creation
of a “housing bubble” that might eventually lead to a crash in prices, the Bank
of Israel on Monday issued a directive that will make most mortgages of over NIS
800,000 more expensive.
“The new guidelines were introduced in light of a
continued surge in house prices over the past years and the growth in housing
credit that exceeds increases in average household income,” Supervisor of Banks
Rony Hizkiyahu said, in a telephone interview following the
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“The steps we have been taken over the past year, including
the new guidelines, are intended to have an impact on the demand side of the
housing market and affect a specific part of the population and not the market
as a whole.
“But this will not be enough,” he said. “To have a real
impact on housing prices the supply problem in the property market needs to be
tackled through the release of land tenders and cutting of construction
Hizkiyahu added that over the past year until August, property
prices had surged by 19 percent.
“Developments in the housing market
resulted in an ongoing increase in the housing credit portfolio, in particular
in the share of credit granted at floating interest rates, and in the size of
the average loan,” Hizkiyahu said. “Hence as the interest rate increases, the
borrowers’ rate of repayment is expected to increase.
“Buyers who take
out a floating- interest loan in a low-interest environment cannot expect to pay
interest of 2% forever. We are only advancing interest rate increases
that will happen anyway.”
The new directive will not apply to mortgages
that were less than NIS 800,000 when issued. Nor will they apply to loans
received by those entitled to housing benefits under the criteria determined by
the Construction and Housing Ministry.
In practice, it means that
mortgage conditions will be tightened for buyers of properties that cost over
NIS 1.3 million who take out floating-interest loans.
the guidelines require banking corporations to increase their capital provision
for floating-interest-rate housing loans granted starting from October 26, 2010,
in which the loan represents more than 60% of the value of the property, and the
ratio between the floating-interest rate part of the mortgage and the total sum
of the mortgage equals or exceeds 25%.
Loans in this category, in which
capital requirements were weighted at 35% or 75%, respectively, will be weighted
at 100% from this date.
“As a result, according to our calculations, the
annual interest rate on mortgages that fit into the category of the new
guidelines will rise by about 0.5%. However, the increase may vary from one bank
to another,” Hizkiyahu said. “We estimate that the directive will have an impact
on 15% to 20% of mortgages.”
The most recent data from the Bank of
Israel, as of August, shows that 50% of all mortgages are issued for up to 60%
of the value of the property, and 10% to 20% for up to 70% of the asset
In June, the volume of mortgages reached a peak, and in September
there was a significant decline of 30% compared to June.
“It is too early
to speak of a change in trend, since September was the month of the High Holy
Days, with fewer work days,” Hizkiyahu said. “But in recent months we are seeing
a decline in the demand for mortgages for apartments bought for investment.”