Bank of Israel directive regarding mortgaging an existing apartment

Regarding the new directive from the Bank of Israel concerning the mortgaging of an existing apartment to purchase an additional apartment

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On 10/6/2021, the Bank of Israel activated the regulation stating that a mortgage cannot be taken out For housing Using an existing apartment as collateral to purchase an apartment Additional. It is possible to read about the intention to implement this regulation. Here.

Until the regulation took effect, it was possible to take out a mortgage on an existing apartment for up to 50% of its value and use the proceeds as down payment to purchase another apartment. For example, someone who owned an apartment worth one million shekels without a mortgage could take out a half-million-shekel mortgage on it and another half-million-shekel mortgage on the apartment being purchased, for a total of one million shekels, which allowed them to purchase the additional apartment without any equity (though with monthly payments on both mortgages that were usually higher than the rent they would have received).

After starting the installation, this action cannot be performed. Through banks. What can be done? It is possible to take out a mortgage at the bank For all purposes On behalf of the existing apartment and using this money as a down payment to purchase another apartment. A personal loan is indeed more expensive in terms of interest, so the entire process will be more expensive, but it is possible.

It's also possible to mortgage the existing apartment with one of the entities not subject to Bank of Israel directives, such as insurance companies or other private companies like Tarya.

The impact of the move on housing prices

This move will not lower housing prices at all and may even cause them to rise further. This statement is seemingly counter-intuitive. If it becomes more difficult to purchase an additional apartment, fewer people will do so, demand will decrease, and prices will fall. This will not happen for a simple reason. Almost no one made this move even before it was implemented. According to Chief Economist's Review at the Ministry of Finance on Real Estate, The typical real estate investor is an established individual, usually from the public or military sector with an income Average of 69,000 shekels(!) per month. I assume a tiny fraction of these people actually mortgaged an existing apartment for a down payment on another apartment. Moreover, the economist notes that if we exclude apartment purchases by investors from apartment sales by investors, their share of apartment purchases is minuscule.

Why do I think if there is any impact to the move, it will be from Price increase? Since many people were not aware at all until today of the possibility of mortgaging an existing apartment to purchase another apartment. The Bank of Israel regulation, which made major headlines in the press, brought public awareness of the possibility of carrying out such a move on the one hand and the ease of bypassing the regulation on the other hand will lead to a situation where, if there is any change, it will be reflected in an increase in the number of transactions carried out by mortgaging an existing apartment.

No one listens to us in the country. It's a neighbor who listens.

I would have been pleased if this regulation had never seen the light of day. I think it's bad, and not only is it bad, it was created in a way that regulations should not be made in a democratic country. I wrote about it. Here. In that same article, I attached the letter I wrote to the Bank of Israel concerning the regulation and asked my readers to also send this letter to the Bank of Israel. Several dozen reported to me that they sent a similar letter. Others wrote to me that there was no point in bothering, as no one would listen anyway. The fact that the regulation that was eventually published was much softer than the original regulation according to the draft shows that someone did listen. Thanks to everyone who participated and sent a letter to the Bank of Israel.