Young Couples Won't Be Spared Mortgage Crackdown

Answering a query by Knesset member Carmel Shama, the Bank of Israel clarified that young couples and those entitled to government support for housing won't be spared the stricter rules on mortgage lending.

Worried by the more-or-less incessant ramp-up in housing prices in recent years, the Bank of Israel has ordered mortgage banks to increase their provisions when lending more than 60% of the value of a home (meaning, the buyer has to put up less than 40% of the equity ). The upshot of the directive is to increase the cost of mortgage lending, which the banks are expected to roll over onto homebuyers. The Bank of Israel hopes that effectively increasing the price of mortgages to homebuyers will cool down the real estate market. Now supervisor of banks Rony Hizkiyahu is clarifying: No exceptions to the new rules.

"We had considered creating differentiation in execution of the directive," Hizkiyahu wrote to Shama. But the treasury officials decided against exemptions, because even the poor - people entitled to government support for housing - were borrowing heavily in order to buy housing at inflated prices.

The upshot was that people have been undertaking loans that are heavy relative to their income, Hizkiyahu explained. What he means is that their monthly repayments may prove to be very burdensome, too much so when interest rates rise anew, or if their disposable income drops, he explained. People in that situation could wind up defaulting on their loans.

"Therefore, clearly, reining in the increases in housing prices is necessary for the greater good of the public, including young couples and people entitled to housing support," Hizkiyahu wrote.

The purpose of requiring the banks to set aside higher provisions to secure loans greater than 60% of the asset value is to help both the public and the banks make responsible, careful decisions, the Bank of Israel has explained.

Shama stated in response that the Bank of Israel's decision is correct in direction and intensity: "On the one hand it will moderate the development of a bubble by raising the interest payable by homebuyers. On the other it leaves general prevailing interest rates unchanged. However, it is causing superfluous problems for the weak, including people entitled to housing support, who are not the ones bloating home prices." He vowed to institute change through legislation.