The Bank of Israel is fighting the phenomenon of economic suicides.

22/8/2013

The past few years have been characterized by very low interest rates and inflation. At the same time, housing prices have risen significantly.

These two trends, coupled with advertising campaigns by banks and contractors, and supported by ignorant or irresponsible bank officials, created the phenomenon of economic suicides.

People who take out a mortgage with a repayment Impersonating  To lower it, but without understanding that in the future this repayment will be higher than the family can afford, thus creating a financial collapse of the family.

I have tried to fight this phenomenon extensively in recent years, and there were several families who came for counseling, and I recommended to them simply Do not execute the transaction.

Yesterday, the Supervisor of Banks decided that he cannot trust banks to prevent people from taking out risky loans that they will be unable to repay.

To combat risky loans, the Supervisor of Banks has established several new rules and definitions.

Variable interest rate – Until yesterday, variable interest rates, in the eyes of the Bank Supervision, were rates that changed with a frequency of less than once every five years. This means Prime was considered a variable rate, but a linked loan with a variable rate every five years was considered a fixed rate. Now, The frequency of change is irrelevant: if the interest rate changes during the loan, it is considered a variable interest rate.

New rules that mortgages must comply with:

1. The monthly repayment will be less than or equal to 50% of monthly income. If the repayment is more than 40% of monthly income, the loan will be flagged as high-risk (and will be offered at a less favorable interest rate).
2. Variable interest rate  A loan will not be granted if more than two-thirds of it is at a variable interest rate (as stated, regardless of the frequency of change). Such a restriction does not exist at all today.
3. Variable interest rate with a frequency of less than five years (e.g., Prime) – The existing limit of a maximum of one third of the loan at a variable interest rate often (less than five years, remains).
4. Loan term – A bank will not approve mortgages for more than thirty years.

Another innovation is the application of the above rules to mortgage refinancing. Until today, any restriction imposed on mortgages applied only to new loans. Now, the Bank of Israel has determined that loans that are refinanced will also have to meet the above restrictions.

Loans that are not required to meet these conditions: 

1. Foreign currency loan for a non-resident.
2. Loan for any purpose under 100,000 NIS.
3. Bridge loan for less than three years. 

 Click here to read the full guidelines document from the Supervisor of Banks