After lengthy deliberations, the Bank of Israel may soon impose new mortgage restrictions. "The Bank of Israel is closer to taking such measures than ever before," said a senior source in Jerusalem.
One measure under consideration is capping mortgages at a loan-to-value (LTV) of 50%. Since such a limit is liable to harm young couples and the poor who take high LTV mortgages, the cap will only apply to homes costing more than NIS 1.5 million. This measure could hurt demand in high-demand areas in central Israel, but previous measures by the Bank of Israel have failed to cool the real estate market in the long term.
Sources inform ''Globes'' that, in late September, top Bank of Israel officials - including Governor Stanley Fischer, Deputy Governor Karnit Flug, and senior advisor to the governor Barry Topf - met with capital market forecasters (top Israeli economists) to discuss the real estate market.
"It seems that the Bank of Israel is worried, really worried, about what is happening in the housing market," one of the participants in the meeting told "Globes". He added that several proposals for dealing with the market arose from the meeting, and that one thing stood out. "The Bank of Israel is focused on the stability of the banking system. Everything else, including social issues and young couples, interests them less. The most important thing is that no bank falls on their watch," he said.
The housing market has been heating up in the past few months, with an all-time high of almost NIS 6 billion in new mortgages granted in August. In July, "Globes" reported that the Bank of Israel was considering measures to cool the housing market, including capping LTV, and increasing the provision that banks must make on mortgage loans.
However, in early September, the Bank of Israel assessed that there was no need to intervene to cool the real estate market. It seems that top central bank officials have since changed their minds. In the "Recent Economic Developments, May-August" survey, published earlier this month, the Bank of Israel stated, "Home prices are in accord with the level of demand, supply, and interest rates in the market. With that, it should be noted that that mortgage volume data indicated a return of buyers to the housing market, and this data in and of itself may create expectations of continued price increases. If these expectations are fulfilled, a price bubble may develop in the housing market."
Although the amount of new mortgages granted in September and October was less than in August, amounting to NIS 4 billion since the beginning of September, this was because of the Jewish holiday season, which reduced the number of working days. The banks say that demand is still high and that there is pressure at their branches.
The banks believe that no measures by the Bank of Israel will cool the real estate market in the long term. "The various measures have only a fleeting effect. If they want a substantive change, two things have to be done: deal with the supply side, which is not the responsibility of the Bank of Israel; or raise the interest rate," said a top banker.
Reports about the Bank of Israel's deliberations have already ignited a political storm. Knesset Finance Committee chairman MK Moshe Gafni (United Torah Judaism) said today, "If young couples, first homebuyers, and people eligible for Ministry of Housing subsidies are not exempted, these restrictions will be a lethal blow to them. There is no chance for a young couple to secure equity for half the value of an apartment, and this should be taken into account."
Published by Globes [online], Israel business news - www.globes-online.com - on October 24, 2012
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