BoI’s clarification aims to cushion the mortgage market
The Bank of Israel has informed the banking industry that it will not allow a loan on an existing home to be used to buy another home, Globes reported on Sunday.
It comes amid a mortgage rush and growing demand for housing.
However, the BoI inserted the message in a draft circular sent to the banks, in the form of questions and answers. To the question “Can a bank grant an additional loan so that it is considered as” equity “for the purposes of calculating the loan / value ratio of the home purchased? the answer is, “No, a banking company cannot provide an additional loan to be used as equity for the purpose of buying a home.”
The central bank also stressed that this was not a change in policy but a clarification of the original restriction on equity, and states that “indeed the practice that has developed is 100% financing for a house, with the addition of additional collateral for the loan, and that was not the intention.
The clarification of the clarification will not be available at this time. The Bank of Israel said: “The banking supervision department does not comment on interpretations of a draft advisory. We will be able to comment once the discussions are over and a final draft has been formulated. “
The measure aims to avoid the following scenario: if someone owns a house worth NIS 2 million on which there is no mortgage, it would appear that it is possible to take out a mortgage ” all-purpose ”up to 50% of the value of the house, ie 1 million NIS, and use it to buy another house with a maximum value of 2 million NIS.
The loan taken on the first home serves as equity toward the purchase of the second home. Since the second home is purchased for investment, I can also get a mortgage loan of up to 50% of the value of that home.
It has become a widespread practice, in part because the BoI introduced an easing during the pandemic, allowing an all-purpose mortgage to be taken out for up to 70% of the value of an existing home, but made it clear that this could not be used as equity in the purchase of an additional home. The bank is now toughening its stance and opposing this practice even with a 50% all-purpose mortgage on the first property, Globes explained.
The Bank of Israel asserts that this is not a policy change but a clarification of the original restriction on equity, and states that “indeed the practice that has developed is 100% financing for a house, with the addition of additional collateral for the loan, and that was not the intention.
Jonathan Berliner, chairman of the Mortgage Advisers Association professional committee, criticized the BoI:
“Six months ago, the Bank of Israel rolled back the restriction limiting variable rate mortgages to one-third of the total loan amount, in an attempt to support the real estate market, but in fact fuel the price hike. . Now he is again trying to cool demand with a measure that will hurt small investors and high profile buyers, ”he accused.
Kan News reported on Sunday evening of a proposal by “senior government officials” for a compromise, citing sources.
The proposal contains several points: a review of the legal status of the site and the possibility of legalizing it; most residents will have to leave and the houses will be left empty; construction of a military post or educational institution on the site; if the outpost can be legalized, then residents will be allowed to return to their homes in the future.
The proposal has not been finalized and could change at any time, or come to nothing, Kan said.
However, for Prime Minister Naftali Bennett, any viable compromises would be welcome rather than the scenes of confrontation and destruction which are immediately threatening, and could also undermine his fragile coalition.
Updated Sunday, June 27, 2021 at 3:22 p.m.
.