Three revisions to the Banking Supervision guidelines on housing loans

The Banking Supervision Department is today publishing a revision to the guidelines on housing loans, as part of which the restrictions on loans used to purchase a dwelling will be updated, and which clarifies that two leniencies issued as part of the temporary order during the COVID-19 crisis, dealing with financing for housing, will not be extended.

 

Supervisor of Banks Yair Avidan said, “Today we have published a number of measures to manage risks and exposures in the banking system.  I am pleased that following an extended discussion we have held, we have managed to find an outline that enables the activity of housing upgraders while somewhat restricting those who are purchasing dwellings for investment purposes, who are not housing upgraders.  It is important that when providing a loan, and as part of a responsible underwriting process, the lending bank shall use all of the tools to properly understand the customer’s financial state, including the use of the credit data sharing system.  In addition, we do not intend to extend the validity of the two leniencies that were issued in view of the COVID-19 situation.  The return to a state similar to the precrisis situation is part of the economy’s recovery process and acclimation to management of the economy alongside the existence of the virus.”

 

The first revision is to the FAQ file regarding restrictions on housing loans, and clarifies that the bank is not permitted to provide an additional loan to serve as “equity” for the purchase of a residential property.  Accordingly, the Banking Supervision Department is revising the FAQ and clarifying that a loan backed by a residential property (“all-purpose loan”) cannot be considered as part of the equity for the purpose of meeting the LTV restriction in purchasing a residential property.

 

However, in order to enable “housing upgraders” to purchase a dwelling before selling their current dwelling, the bank will be permitted to provide an additional loan in order to complete the financing of the purchase, subject to the fulfillment of certain conditions as detailed in the attached clarification.  These include a clarification that the loan period shall not exceed a maximum period during which the borrower must sell his existing dwelling according to Israel Tax Authority guidelines.[1]  As of today, the loan period shall not exceed 24 months.  When purchasing a replacement dwelling from a contractor, the banking corporation is permitted to renew bridge loans for a period of up to 12 months from the date the dwelling is actually transferred to the borrower.

The other two revisions are a decision on not extending the validity of the leniencies regarding housing loans issued as part of the temporary order, and they shall expire on September 30, 2021:

 

(a)   The temporary order allows an increase of the LTV rate up to 70 percent for an all-purpose loan, instead of up to 50 percent.

(b)   The temporary order sets out that the banks shall not be required to increase their Tier 1 Capital target by 1 percent in respect of housing loans issued during the period of the temporary order.

 

In addition, the Banking Supervision Department is currently examining the validity of the other sections of the temporary order that is intended to make it easier for the banking system during the COVID-19 crisis in general (Proper Conduct of Banking Business Directive 250).  The Banking Supervision Department is constantly monitoring developments in the mortgage market, and will continue to do so.

 

The revisions that are being published were sent for comments to the Advisory Committee and for public comments before taking effect as final guidelines.  The documents (in Hebrew) are attached to this notice and at the following link.

 

https://www.boi.org.il/he/bankingsupervision/draftsfromthesupervisorofbanks/pages/default.aspx

 



[1] In Section 9(c1c)(2)(b) of the Land Taxation Law (Betterment and Purchase), 5723–1963.​