Recent mortgage changes in Israel have little immediate effect
In April of this year, The Bank of Israel issued a directive to Banks that effective May 5th, 2011, all new variable rate mortgages could only have 1/3 of the total amount of the mortgage at a variable interest rate, with the rest of the mortgage being at a fixed rate. This move on the part of the Central Bank was an attempt to reduce risk to their borrowers in the event the Bank has to continue to raise interest rates. The Central Bank has recently been raising interest rates in order to help cool off the Israel real estate market.
Variable rate mortgages have been popular in Israel, especially with the very low interest rates of the last several years. In the past year, 85% of the mortgages issued were variable rate. Apparently, The Bank of Israel announcement sent people hurrying to their banks to get a mortgage before the new changes took hold. Globes recently reported that May was a near all-time record high for Mortgages with NIS 4.8 billion in new mortgages being issued. Variable interest mortgages accounted for 86.6% of the total mortgages issued in May.
The Bank of Israel has repeatedly warned of a "housing bubble" and does not want to see a repeat of what happened to many borrowers in the U.S. when their monthly mortgage payments increased to unmanageable levels.
Source: Ynetnews
June 27, 2011
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