Mortgage Terms Restricted Further by The Bank of Israel

According to information from reliable sources, the Bank of Israel is planning to release, for the second time, macro-prudential measures in real estate, so as to avoid formation of a real estate bubble due to mortgages brought about by the most recent expansionist monetary policy. In the previous year, the Bank of Israel decreased the interest rate for the month of July to 2.25 percent.

Moreover, two measures are actually being planned by the Bank of Israel. First, immediately limit the loan-to-value (LTV) of mortgages to 33-40 percent. Second, raise the banks’ requirements for mortgages, to decrease their motivation to approve new mortgages.

In addition, the sources said that the monetary council talked about the two measures during the meeting last Monday. The council’s decision is to decrease the interest rate once again.

As a result of lower interest rates, it is more sensible to invest in real estate and less sensible to invest in financial assets. Because the monetary council was disturbed by the mortgage data released by the Bank of Israel, they decided to include it in the agenda of the meeting.

Based on the data from Bank of Israel, the new mortgages increase 35 percent to NIS 4.1 billion during the month of May from NIS 3.02 billion during April. Also, new mortgages were at its highest point at NIS 4.8 billion during May of the previous year. While mortgages by investors were up by 30 percent during May compared to April, 40 percent of new mortgages were created at 60 percent LTVs and the share of these mortgages also increased significantly.

Although Bank of Israel believed that the mortgage figures for the month of May were for only one month, assessment of the figures indicates that there is a trend. The sources added that the officials at Bank of Israel gave a warning to Governor Stanley Fischer that the existing macro-prudential regulations were not enough.

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