Leniencies in the provision of housing loans in view of the corona crisis

 

The Banking Supervision Department is adopting further regulatory leniencies, with the aim of assisting borrowers during the crisis.  As such, the Banking Supervision Department is publishing a temporary order to the banking system, with the aim of reducing the effects of the corona crisis on mortgage borrowers and those taking out all-purpose credit backed by a dwelling, while also making it easier for workers placed on unpaid leave who can therefore not meet the regulatory restrictions that enable them to obtain a mortgage.

The main points of the order:

1.Leniency in the restrictions on housing loans for workers placed on unpaid leave.  The restriction on the payment-to-

        income   (PTI) rat​io will be 70 percent under certain conditions.

In view of the corona crisis, many workers have been placed on unpaid leave and their income has declined as a result.  Therefore, the “payment to income ratio” restriction, which, prior to the change, is 50 percent of the income of both spouses, may constitute an impediment for them in obtaining a mortgage, and in certain cases it may pose a barrier to meeting the existing obligations to purchase a dwelling.

The temporary order therefore currently sets out that the banks are permitted to provide home purchasers with a mortgage based on their income before they were placed on unpaid leave, under certain conditions: that the deviation from the PTI restriction is due to the decline in the borrower’s pre-leave income or a decline to part-time work due to the corona crisis; that in the bank’s assessment the borrower is expected to return to his work once the crisis is over; and that the borrower’s PTI ratio after being placed on unpaid leave does not exceed 70 percent.

Moreover, for the purpose of allocating capital in respect of the housing loan, the bank is permitted to calculate the PTI ratio on the basis of the borrower’s pre-leave income.  This prevents an increase in the capital requirement in respect of such mortgages, and thereby may prevent an increase in interest rates to these borrowers.

       2. Reducing the additional 1 percent capital requirement in respect of housing loans provided during the corona crisis

Over the years, the Banking Supervision Department has adopted a supervisory policy that has included a requirement to allocate increased capital over and above the international standard, particularly in respect of housing loans, and has created an additional capital buffer.  Now, in view of the corona crisis and due to the effort to make it easier for borrowers, the Banking Supervision Department has determined not to apply the additional capital requirement in respect of such loans.  The measure is intended to ease the bank’s capital requirement in respect of housing loans, and accordingly to lower the interest rate on such loans.  This measure is also expected to affect all-purpose loans backed by a dwelling, which the Banking Supervision Department’s temporary order of March 15, 2020 permitted to increase in order to provide the public with access to credit at relatively low interest rates.[1]



[1] See “The Banking System: Regulatory Leniencies and Services to the Public in View of the Spread of the Coronavirus”, https://www.boi.org.il/en/NewsAndPublications/PressReleases/Pages/15-3-2020.aspx​

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