Bank of Israel: new mortgage guidelines to control housing demand

The Bank of Israel is placing new guidelines on banks to change their policy of 70% mortgages to offer only 60%. Bank of Israel supervisor Roni Hezekyahu set new guidelines for mortgages published to banks today as new restrictions on mortgage credit.  The actions were taken to cool what could be a housing bubble based on supply and demand, not on easy credit.

Housing demand is so high that prices continue to increase at record levels making Israel the third strongest real estate market in the world. According to housing index Knight-Frank and reported by Yediot Ahronot Israel saw a 21.3% rise in housing prices in 2009, third in the world after Australia and Hong Kong.

Local mortgages are based on  70% financing, now the mortgagor will require the customer to increase the equity to purchase an apartment with 33% down. Now it will be required to purchase a home at 40% of the value of the apartment, instead of 30%.

Alternatively, if the bank agrees to provide mortgage financing at a rate of 70%,  interest on the balance will increse because banks are expected to pass the added cost onto customers.

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