The Governor of the Bank of Israel, Prof. Amir Yaron, today referred to the dramatic move to change the limit on the mortgage component from one-third to two-thirds. In this regard, the Governor said that the change will be implemented in two sections. The first stage, which may take effect in the near future, is intended for apartment buyers only. This means that the property owners will not be able to refinance a mortgage in the first stage until after a period of several months. The reason for the division stems from the banks’ preparation and adjustments to their investment policy, which is based on the current mortgage routes.
The Bank of Israel notes that in the past decade, the Supervisor of Banks has taken a set of macro-stability measures in light of developments in the housing market. Thus, they mention that, among other things, the Supervisor of Banks set restrictions on the share of the housing loan at a variable interest rate from the total loan. The first restriction – the share of the loan in prime interest will not exceed one third of the total loan, and the second – the total share of the loan in variable interest will not exceed two thirds of the total loan.
This is a step that may increase the volume of mortgages, heat the housing market and continue to increase the profitability of banks. The prime interest rate is significantly lower than the fixed interest rate and this will allow home buyers to lower their mortgages. It will also allow mortgage refinancing for those who already have a mortgage. Yaron said that this was a limitation that should have been lowered in the current period in light of the expectation of low interest rates.
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