On Thursday, May 5, comes into force the new instruction of the Bank of Israel, which forbids banks to issue mortgage loans for more than a third variable interest rate. This step is aimed at cooling the property market, automatically leads to rise in price of the mortgage.
Editorial NEWSru.co.il publishes answers to common questions related to the actions of the Bank of Israel in the mortgage market.
I'm going to buy an apartment and want to take half of the loan with reference to the percentage of "prime" because it is the cheapest. Will I be able to do it now?
When you receive a mortgage loan is your opportunity to vary the various loan options will be limited. According to the Bank of Israel, a loan on a variable interest rate change more frequently than once every five years should not exceed 33% of the total amount of the mortgage loan. This means that under the restriction are subject not only to loans at interest "prime", but also loans that are linked to other "anchors" - the government bond rate or the percentage of "leybor, if change tracking is performed more frequently than once every five years .
I already have a mortgage payment at 70% tied to the rate of "prime." Can I be forced to change the composition of the loan?
No, the decision of the Bank of Israel applies only to new mortgage loans. However, if you decide to refinance your loan, you will need to reduce the component bound to the variable percentage to 33%.
I have received from your bank commitment for a mortgage, a third tied to the rate of "prime" and a third - to the index are changed once a year. The loan itself will get only a week later. Can the bank refuse to give me a loan based on the decision of the Bank of Israel?
None. The obligation to give a mortgage on certain conditions, issued before May 5, does not fall under the new regulations.
Why the Bank of Israel intervenes housing market, increasing the cost of the mortgage?
The Bank of Israel is not concerned about the cost of mortgage or high prices for apartments, and stability of the banking system. The current situation in the property market threatens the stability of Israeli banks, which are forcing central banks to take active steps to "cool" market.
Addressing the real estate market by increasing supply is managed by the government. The Bank of Israel can affect the real estate market is only the demand side. One of the most effective steps to reduce the demand for housing is to increase the cost of financing.
How rate "prime" threatens the stability of banks?
The rate of "prime" - or rather, a discount rate of the Bank of Israel, is one of the main instruments by which the central bank conducts its politics. The rate of "prime" rate is the Bank of Israel with the addition of a half percent.
Mortgage banks profitable to sell mortgages to customers with reference to the rate of "prime" because it does not require them any effort. Money under the loan bank mobilizes the Bank of Israel, to give a certain percentage of the mediation. Clients willingly take loans at interest "prime" because they are "cheap" and not tied to the Consumer Price Index. In recent months, 86% of new mortgage loans were bound to a variable rate.
However, with all its advantages, such loans have one big drawback. An increase in the Bank of Israel interest rate the monthly payments the customer increases dramatically. For example: currently a client who has taken a loan of 500,000 shekels with reference to the rate of "prime minus 0.6% pay 3,356 shekels a month (a discount rate of 3%," prime "- 4,5%). According to forecasts the vast majority of analysts within a year discount rate will increase by 2%, and the client will have to pay 3,888 shekels a month. If the Bank of Israel will not be able to cope with inflation, the discount rate will continue to grow, further increasing the monthly payment. Only 9 years ago, in 2002, the discount rate the Bank of Israel amounted to 9,1%. In such circumstances, the customer will make monthly payment of NIS 4,672 a month - more than 1.300 shekels more than now.
In such circumstances, the number of families unable to pay the mortgage, would dramatically increase. It is for this scenario to develop economic crisis in the U.S., Iceland and Ireland.
I heard that you can no longer get a mortgage in excess of 50%. Is this true?
No, it's not. Such a move was considered but decided not to apply it at the moment. In May 2010, it was decided, requires banks to deduct for doubtful accounts 0.75% of the issued loans if its size exceeds 60% of the value of the purchased property. In October 2010, were limited to the largest mortgage loans (over 800 thousand shekels, and over 60% of the cost of buying a property). In the case of the issuance of such a mortgage bank is obliged to reserve out of its equity at 35% of its size, and 100% of its size.
Are there ways to still get a mortgage at a variable rate?
Yes there are. Recently, the mortgage market went insurance companies and pension funds, whose activities are not regulated by the Bank of Israel. These companies can give you a loan at a variable interest rate.