After
examining comments by the Advisory Committee and from the public, the Banking
Supervision Department today sent the banking system a revision to the
directive on providing housing loans, cancelling the restriction on the part of
the loan indexed to the Prime rate, and setting a timetable for the amendment
to take effect.
It is
emphasized that other restrictions on housing loans remain in place, including
the loan to property value (LTV) ratio, the monthly payment to household income
(PTI) ratio, and the restriction on the part of the loan that can be taken out
at a variable interest rate, according to which at least one-third of the
housing loan shall be issued at a fixed rate, and up to two-thirds can be
issued at a variable interest rate.
The implementation of the directive requires operational and technical
adjustments in the banking system. As such,
the following is the expected timetable for the directive to come into effect:
1. Those taking out a new housing loan- The directive will
take effect on January 17, 2021.
2. Those refinancing an existing housing loan – Due to the
potential operational overload, and in order to enable the banking system to
properly prepare, the cancellation of the restriction regarding a housing loan
intended for early repayment (at the bank where the loan was taken out or
through another bank), will come into force on February 28, 2021.
As a
complementary measure, the Bank of Israel is currently examining the
calculation method and fee levels for early repayment of housing loans, which
will lower the cost of refinancing the mortgage for borrowers who choose to
take this step. A revision of the early
repayment fee mechanism requires consulting with the Ministry of Justice and
approval by the Minister of Finance and the Knesset Finance Committee. This process is expected to advance during
2021.
Supervisor
of Banks Yair Avidan said, “We have taken this measure with the desire to make
it easier for borrowers, with a risk-based systemic view that balances
management of individual risk with management of risks in the housing portfolio
of the entire banking system and other macroeconomic variables.
“The
cancellation of the restriction has the power to increase the flexibility and
variety of options available to borrowers, and also to somewhat lower the cost
of monthly mortgage payments. In
parallel, it is important to re-emphasize the need for the borrower’s careful
consideration when choosing a mortgage plan in order to take the existing costs
and risks of each possible track into account with a forward view.”
FAQ on the Prime rate component