BoI Clarification Targets Mortgage Market Containment




Construction site of residential buildings in Beer Ya’akov in the center of Israel. (Flash90)

The Bank of Israel has notified the banking industry that it will not allow a loan taken on an existing home to be used to buy another home, Globes reported on Sunday.

This comes amid a surge in mortgage lending and growing demand for homes.

However, the Bank of India included this communication in a draft circular sent to banks in the form of questions and answers. To the question “Can the bank provide an additional loan, which will be considered” capital “for the purpose of calculating the cost of the loan for the purchased home?” Answer: “No, a banking corporation cannot provide an additional loan intended to be used as equity for the purpose of buying a home.

The central bank also stressed that this is not a policy change, but an explanation of the initial capital cap, and stated that “the practice is, in fact, 100% home financing with the addition of additional collateral for the home. a loan, and that was not the intention. “

No clarifications have been received yet. The Bank of Israel said: “The Banking Supervision Department does not comment on the interpretation of the advisory draft. We will be able to comment on this after the completion of the discussion and the development of the final draft. “

This measure is intended to prevent the following scenario: if someone has a house worth 2 million shekels for which there is no mortgage, it may seem that you can take a “universal” mortgage loan up to 50% of the amount. the value of the house, that is, 1 million shekels, and use it to buy another house for up to 2 million shekels.

The loan received for the purchase of the first home serves as capital for the purchase of the second home. Since the second home is being bought for investment, I can also get a mortgage up to 50% of the value of this home.

This has become a widespread practice, in part because the Bank of Iraq introduced mitigation during the pandemic by allowing a universal mortgage loan of up to 70% of the value of an existing home, but made it clear that this cannot be used as capital when buying an additional house. The bank is now tightening its stance and opposing this practice even with a 50% universal mortgage loan received for its first property, Globes explained.

The Bank of Israel states that this is not a policy change, but an explanation of the original capital cap and states that “the practice is, in fact, 100% home financing with the addition of collateral for the loan, and this was not the intention.”

Jonathan Berliner, chairman of the professional committee of the Association of Mortgage Advisers, criticized BoI:

“Six months ago, the Bank of Israel lifted the restriction limiting floating rate mortgages to one third of the total loan amount, in order to support the real estate market, but in fact added fuel to price increases. Now he is again trying to dampen demand with a measure that will harm small investors and buyers who are growing, ”he said.

Kanskie Novosti on Sunday evening reported on a compromise proposal from “high-ranking government officials”, citing sources.

The proposal contains several points: re-checking the legal status of the site and the possibility of its legalization; most residents will have to leave and their houses will be empty; on-site construction of a military post or educational institution; if the outpost can be legalized, then residents will be able to return to their homes in the future.

According to Kahn, the proposal has not yet been finalized and may change at any time or end in nothing.

However, Prime Minister Naftali Bennett would welcome any viable compromise, not scenes of confrontation and destruction that immediately threaten and could undermine his fragile coalition.

Updated on June 27, 2021 at 15:22


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