Bank of Israel sets new rules for mortgage loans
Posted on 25. May, 2010 by Buy-It In Israel Staff in Israel Real Estate, Mortgages
The Bank of Israel this week issued new guidelines for the country’s banks regarding mortgages which will make it more difficult for homebuyers, in particular young couples, to buy a new home in Israel.
The new restrictive mortgage guidelines come in response to ballooning Israel real estate prices across the country over the past two years, which peaked in December 2009.
The central bank explained that the guidelines were formulated in light of macroeconomic and industry processes causing housing price increases in many areas in Israel over and above the rise in the standard of living and households’ income.
“These processes are also expressed in an increase in the number of loans and in the average size of loans, and are likely to result in continued erosion of the quality of housing credit portfolios and increased risk in the total portfolio,” said the central bank. “The guidelines require banking corporations to re-examine the risks in their current credit portfolios, and also their mortgage policy, to ensure that it does not result in their taking larger than desired risks. ”
The new restrictions, may affect homebuyers wanting to obtain a mortgage in Israel in two ways. Firstly, banks will be reluctant to give out mortgages of more than 60 percent of the property price, since they are requested by the new guidelines of the Bank of Israel to put aside an additional provision of a minimum of 0.75 percent of the outstanding loan for a mortgage allowance of more than 60 percent of the price of a property effective from April this year.
Until now, homebuyers in Israel on average were given a mortgage of up to 70 percent of the purchase price. In practice, this means that homebuyers will need 33 percent more of their own capital in order to buy a property because they will be required to raise 40 percent of the value of the home instead of 30 percent until now.
Secondly, homebuyers who may succeed in getting a mortgage of over 60 percent of the value of the property are likely to be charged a higher interest rate of up to an estimated 1 percent since the loans will become costlier for banks because of the additional provision requirement.
© Copyright 2010
Related Articles:
