Plan for mortgage-market risk draws flak

Meitav Investment House: "This would be an erroneous decision from the Bank of Israel – both from an economic perspective and from a political perspective."

April 14, 2011 23:08
2 minute read.
Apartments in Rehavia

Rehavia building 521. (photo credit: Marc Israel Sellem)


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The Bank of Israel will be making a mistake if it goes ahead with macro-prudential measures it is believed to be considering to reduce risks in the mortgage market, Meitav Investment House said Thursday.

“This would be an erroneous decision from the Bank of Israel – both from an economic perspective and from a political perspective,” wrote Meitav analyst Terence Klingman. “We live in a democratic country in which it is permissible for two sides (lender and borrower) to determine the conditions of a loan between themselves. In legal terms this principle is known as ‘freedom of contract,’ and the court must interfere as little as possible in contracts agreed upon between consenting parties.”

According to details released by the central bank earlier this week about its discussions prior to setting the April interest rate, four members of the bank’s management weighed up whether to accompany the rate hike with macro-prudential measures.

More specifically, Meitav referred to a Channel 2 report this week that the bank is considering two specific steps: limiting the share of a mortgage taken at a variable interest rate to 30 percent to 40% of the property’s value, instead of the current accepted average of about 60%; and introducing a regulation that would limit mortgages to 50% of a property’s value, instead of the current accepted average of about 70%.

Klingman said it was understandable that the bank would want to limit mortgages to a reasonable extent. However, current mortgage limitations in Israel were already among the most stringent in the world, he said.

The steps the bank is now believed to be considering would impact too heavily on housing supply, Klingman said.

“What sort of contractor would take upon himself the risk of building new apartments,” he said, “if the next day the Bank of Israel will impose extra limitations on mortgages or, in the most extreme case, impose a blanket ban on buyers from taking out loans for the purpose of purchasing an apartment?”

Meanwhile, foreignexchange analysts on Thursday predicted the dollar would continue to fall beyond its current 30-month low against the shekel. Goldman Sachs released a report forecasting an exchange rate of NIS 3.35 in six months and NIS 3.25 in 12 months. HSBC predicted that the Bank of Israel would see less justification in supporting the shekel by intervention, and the dollar could fall even lower than its own end-of-year forecast rate of NIS 3.4.

However, the Bank of Israel intervened heavily in foreignexchange trading Thursday morning, purchasing hundreds of millions of dollars, according to market estimates. By lateafternoon trading, the dollar had recovered to NIS 3.416 after coming very close to falling below the 3.40 barrier.

The dollar-shekel exchange rate it at its lowest since September 2008.

Globes contributed to this report.

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