Published December 21, 2010 by Tzvi Shapiro

The Bank of Israel reports that the average mortgage interest rate fell to a historic low of 2.18% in October from 2.2% in September. The Bank of Israel’s new guidelines on mortgage terms, aimed at raising mortgage costs, will come into effect shortly.

The average mortgage interest rate was 3.53% in August 2009, when the Bank of Israel began to raise the base interest rate. Fischer has raised the interest rate 150 basis points from 0.5% to the current 2%. However, the interest rate hikes are not yet reflected in mortgage interest rates.

The average interest rate on Consumer Price Index (CPI) linked five-year mortgages fell to 2.02% in October from 2.06% in September, and the average interest rate on 17-20 year mortgages fell to 2.91% from 2.94%. However, the average interest rate on 12-15 year mortgages rose to 2.53% in October from 2.48% in September.

Published by Globes [online], Israel business news – www.globes-online.com – on November 11, 2010

The Bank of Israel has left the interest rate for November unchanged at 2%, as expected. Governor of the Bank of Israel Prof. Stanley Fischer had raised the rate for October by 25 basis points to 2%.

However, in a surprise and dramatic move Supervisor of Banks Rony Hizkiyahu has made large mortgages significantly more expensive by publishing new draft directives regarding floating-interest leveraged housing loans.

The Bank of Israel said, “The directives entail a requirement for a higher capital provision for floating-interest loans granted with a high loan-to-value (LTV) ratio. The directives will not apply to small housing loans (below NIS 800,000) or loans to those with housing entitlements.”

One senior banker told “Globes,” “This is a significant toughening of mortage conditions and it means at least one percent more in annual interest.

The measure is clearly aimed at hurting purchasing groups.

The Bank of Israel is determined to cool down Israel’s housing market. According to the Central Bureau of Statistics, the price of an average Israeli home has risen by 20% over the past year and 50% since mid-2007.

The Bank of Israel added, “The new directives require banking corporations to increase their capital provision for floating-interest-rate housing loans granted from October 26, 2010, in which the loan represents more than 60 percent of the value of the property, and the ratio between the floating interest rate part of the loan and the total sum of the loan equals or exceeds 25%. Loans fitting into this category on which the capital requirements were weighted at 35% or 75% respectively, will be weighted at 100% from this date.”

Published by Globes, Israel business news – www.globes-online.com – on October 25, 2010