Housing Minister Ariel Atias yesterday called on the Bank of Israel to shield people buying their first home from the mortgage reform revealed on Monday.
Speaking before the Knesset Finance Committee subcommittee devoted to strengthening Israel's peripheral areas, Atias called on supervisor of banks Rony Hizkiyahu to fine-tune the proposal. He supports the concept in general, which boils down to making mortgages costlier in order to cool down Israel's roaring real estate market, Atias clarified. He just wants the central bank to spare people who are buying their first home.
On Monday the Bank of Israel made two announcements. The first, which caused no eyebrows to twitch, was that its overnight lending rate to banks would remain unchanged at 1.5% in June. The second took the marketplace by utter shock: Hizkiyahu proposed increasing the cost of mortgages to all home buyers who borrow more than 60% of the home's value, in order to cool down the real estate market after years of steadily climbing home prices.
Technically, the Bank of Israel means to require that the mortgage banks increase their doubtful-debt provisioning for any mortgage loans greater than 60% of the home's value.
But since mortgage loans will become costlier for banks, the banks will simply roll the extra cost onto borrowers. The upshot is that mortgages will become more expensive, even though interest rates remain unchanged for the time being.
"In principle the Bank of Israel's step is welcome, as long as it isn't applied to anyone buying his first apartment," Atias stated yesterday. "The supervisor of banks issued a draft directive and I am confident he had no intention of impairing the ability of young couples to realize their dream and buy a home."
The central bank has another goal, which is to ensure the stability of Israel's banks. The more banks lend, the more at risk they are. The situation has been that property prices have been constantly climbing, and meanwhile, the banks happily lend 70% of the price of homes to buyers. But if the state of the market reverses and home prices start to fall, and loans start to sour, and the banks find themselves unable to sell the properties for the prices the buyers paid - they could be vulnerable.
Tighten the target?'
Yet requiring young couples to come up with more equity, and to borrow less, is not feasible, Atias protested yesterday.
People buying apartments for investment purposes comprise 30% of the market, and that's where the Bank of Israel should be cracking down, Atias said. It shouldn't make life harder for the other 70% of buyers, who are acquiring their first home.
Atias also suggested that the Housing Ministry, which he heads, has the regulatory ability to confine the supervisor of banks' directive to people buying a second or third apartment.
"It is a good thing to cool down prices [in the real estate market] by reducing demand among investors," Atias said. "On the one hand, the Bank of Israel wants to keep interest rates low because of the state of the economy and the debt crisis in Europe. On the other hand, home prices need to be kept in check." (The lower interest rates are, the easier it is for businesses to borrow.)
MK Moshe Gafni, who chairs the Knesset Finance Committee, intends to invite Hizkiyahu to discuss the proposed reform with the committee in the near future. Gafni implied that he agrees with Atias' position: "Young couples will have difficulty accepting a decision that puts them further from realizing their dream of buying a home," he said.
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