Since the Coronavirus crisis began in March 2020, the Bank of Israel allowed all Israel mortgage borrowers to defer repayment of their loans, without having to show any proof of their financial strain. As a result, up until mid-November, a total of NIS 11 billion in loan repayments were delayed. The central bank recently announced a change in policy, according to which this policy of complete exemption from repayments will be revoked, while still allowing borrowers who can prove economic distress to receive a reduction of up to 75% in the amount of repayment.
The Bank of Israel announced last week that it intends to alter the Israel mortgage policy that it implemented at the beginning of the COVID-19 pandemic in a way that will limit borrowers’ ability to continue deferring their monthly mortgage payments. Since March of this year, borrowers have been allowed to request that their bank defer loan repayments without needing to provide any proof of financial distress.
According to these policy steps, from March until mid-November 2020, Israeli banks deferred loans for thousands of clients, totaling NIS 11 billion. This policy decision, which enabled all borrowers to request payment deferrals for a period of six to nine months, will be concluded at the end of the calendar year, December 31, 2020.
Payment assistance only for Israel mortgage borrowers whose income decreased by 40%
According to the Bank of Israel Banking Supervision Division, a new directive will begin January 1, 2021, that will put an end to the all-encompassing repayment deferral initiative but will continue to allow a significant reduction in payment amounts for households that meet a number of criteria. This reduction will still be available for anyone who has already postponed their payments once since the onset of the Coronavirus pandemic, whose total household income before the outbreak did not exceed NIS 20,000 net per month, and whose income fell by at least 40% since the onset of the crisis.
Households that meet these three conditions and are interested in further delaying their mortgage repayments, will not be able to delay the full amount of their mortgage payments, but they will be eligible to receive a reduction, in accordance with either one of two tracks that all Israeli banks are offering clients. In the first track, monthly payments may be reduced by 25%, 50% or 75% (the choice is up to the client) for up to 24 months. The second track allows clients to delay principal payments, and pay only the interest, such that the monthly charge will be reduced by 40%-70%, for a period of up to 24 months.
57,000 Israeli households are “at-risk”
In an official statement, the Bank of Israel announced that “The new mortgage policy steps were taken with the understanding that the ramifications of the Coronavirus pandemic are expected to lead to cash flow difficulties for some borrowers during 2021 as well, and as such, the period for submitting requests for repayment deferrals will be from January 1, 2021 until March 31, 2021.” The bank emphasized that extending a loan would be considered starting a new loan according to the original interest terms. “Therefore, borrowers are urged to only take advantage of the payment deferral measure after seriously considering its necessity.”
The Bank of Israel’s announcement of its policy change came just days after the Chief Economist Division of the Ministry of Finance presented data showing that of the 240,000 apartments that were purchased by first-time home buyers between 2015 and 2019, 57,000 of them were purchased by couples in which at least one of the spouses had been furloughed or fired from their jobs in March or April 2020. This group is considered “at risk” for not meeting their mortgage repayments.
Nevertheless, the Israeli economic media has reported that despite the tightening of the Bank of Israel’s position, which is no longer allowing the entire general public to continue deferring repayments of loans, the lighter conditions that are now being offered to mortgage holders in Israel who have suffered as a result of the coronavirus pandemic are expected to protect both borrowers, as well as the overall residential real estate market, from experiencing a significant drop in housing prices. Moreover, it was reported that a scenario in which a huge number of mortgage holders put their homes up for sale due to their inability to keep up with mortgage payments, is still far away.
It should be noted that a scenario in which there is a sharp drop in Israel real estate prices would severely hurt the banks themselves, since they are vulnerable to conditions in the real estate market, through tens of billions of shekels worth of credit to builders, as well in mortgage loans in Israel. It can be surmised, therefore, that this is one of the reasons the Bank of Israel is continuing with its relief policy for a certain number of borrowers.