Home News Better mortgage conditions may help more homebuyers get a leg up, experts say

Better mortgage conditions may help more homebuyers get a leg up, experts say

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Policy makers trying to slow the relentless rise in home prices have recently begun to pay attention to mortgages, which are part of the often overlooked Israeli home buying puzzle.

Unlike many other countries where banks can cover 90% or all of their mortgages, the Bank of Israel regulations prohibit banks from covering more than 75% of their mortgages. However, some are beginning to question Cap’s wisdom and other regulations aimed at protecting banks from high-risk loans, keeping many buyers out of their first homes. became.

The loan limit is for the average homebuyer to secure an average home for NIS 510,000 ($ 152,000), plus agent fees, statutory costs, and NIS 1,757,000 ($ 505,840). This means that you need to pay an additional fee to cover the real estate purchase tax. Average real estate prices in Israel, As of March 2022. In Tel Aviv, where the average home is NIS 2,505,000 ($ 721,189), homebuyers need to store more than NIS 700,000 ($ 200,000) under the mattress.

“The Bank of Israel’s borrowing limit is well above the national average for many in their 30s and 40s, even if they can repay with a mortgage of 3-4 million NIS ($ 943,000- $ 1.3 million). ), You can’t buy real estate in the heart of the country, “said Norman Shapiro, senior mortgage broker. First Israeli Mortgage..

“What’s happening is that a significant proportion of the population is socially engineered from the housing market,” he told The Times of Israel.

Before the dissolution of Knesset last month, MK Michael Biton, chairman of the Knesset Economic Commission, asked: Regulators and banks are allowed to increase the percentage of real estate prices that can be rentedAs a way to help homebuyers keep pace as home costs soar.

Biton puts strict regulations on relatively small risks after a representative of the Bank of Israel said at a meeting of the Economic Commission on June 19 that only 0.02% of mortgages face serious problems. Shown that it may not be justified.

“I don’t want the risks and bubble bursts that occurred in the US in 2008, but looking at these numbers, which show that there is more than 99% stability, try raising the credit limit to 80%. Isn’t it? “He asked.

Instead, regulators are moving in the opposite direction, raising interest rates, hindering lending and slowing inflation. After years of keeping interest rates as low as possible, banks have tripled interest rates to 1.25% in recent months. Banks have now raised interest rates on borrowers, and the cost of taking out a loan to buy a home has increased rapidly.

Aaron Krasner, a leading mortgage specialist in Shapiro and his fellow Anglo mortgages.

A state of the construction site of a new house in Gedera City on February 3, 2022. (Yossi Zeliger / Flash90)

Not only does the rate make home ownership more expensive, but it also affects who the bank can lend to, thanks to the Bank of Israel’s restrictions on the amount of monthly salary that can be used to pay mortgages.

The cap fluctuates between 33% and 40% of net monthly income after tax and after other debt commitments that the borrower may have.

To qualify for a monthly NIS 10,000 ($ 2,870) mortgage, the borrower must deduct NIS 25,000 ($ 7,175) at least a month. The average monthly salary after tax in Israel is around NIS 7,700 ($ 2,200), a threshold that even many two-person households struggle to reach.

While designed to protect banks from bad debt and prevent borrowers from overstretching themselves, regulations allow some homebuyers to take longer mortgages or part of their mortgages. You are forced to sign up for a higher risk but cheaper floating rate.

According to the company, a strict loan-to-value cap is found in 40% of developed countries. Researchers at Tel Aviv University.. They help slow the growth of household debt and reduce bank losses in the event of a housing market collapse. They don’t affect home prices, but they definitely make it harder to get on a home ladder.

“The Bank of Israel is nervous about the potential housing market downturn seen in other parts of the world, which has hit the banking sector as a whole. We want to protect against such exposures, which makes the buyer’s life more difficult, “says Shapiro.

A young woman is looking at a real estate billboard in Jerusalem. September 22, 2016. (Nati Shohat / Flash90)

In a market like we And that EnglandFirst-time buyers can rent 90% or 100% of the cost of a new home. Some loans are also configured to include additional real estate purchase costs, which are also prohibited by Israeli regulations.

These transactions are not available to everyone. Applicants usually require good credit history and mortgage insurance and pay higher interest rates. However, these types of loans can allow high-paying young people to buy their first real estate with a relatively small initial cash investment.

In Israel The average age of first-time buyers is 36 years. Relatively high For West.

“Ten years ago, an Israeli insurance company provided an additional loan to buy a home,” Shapiro said. But he goes on to explain: Clear restrictions on borrowingLimit loans to first-time buyers to 75% and explicitly state that banks may not offer Additional loan to cover equity To buy real estate. “

The headquarters of the Bank of Israel in Jerusalem on March 31, 2019. (Yonatan Sindel / Flash90

The Bank of Israel Israel’s housing debt is relatively low by international standards, and the conditions set for mortgages are conservative compared to other similar economies, but guarantee that the Israeli financial system is risk-resistant to the housing market. Shapiro explained that he wanted to.

The 75% lending limit minimizes bank exposure to negative equity and incorporates the lessons of the 2007-2008 mortgage bubble collapse.

Borrowing restrictions also encourage purchases in cheaper regions of the country, and second real estate mortgage restrictions help weaken the enthusiasm to buy additional investment real estate.

So far, the Bank of Israel Start to become a homeowner Primarily by promoting transparency in the mortgage market and enabling buyers to understand the overall cost and make the right transactions.

Last year, Israelis Borrowed a record NIS 116 billion ($ 36.5 billion) Mortgage.In part, this was due to record price increases in real estate costs — rising More than 15% so far this year, According to the Central Statistics Office.However, the overall limit on the amount of money you can borrow to raise money for a mortgage is Israel’s household debt is relatively low It’s harder to buy a house than in other countries.

On June 19, 2022, Israelis set up tents on Rothschild Boulevard in Tel Aviv to protest Israeli housing price hikes and social inequality. (Tomer Neuberg / Flash90)

Home sales peaked in late 2021 after steadily growing since 2018, but the market has been showing signs of recession since then. New home sales for the period February-April 2022 were 12.9% lower than in the previous three months, according to seasonally adjusted government figures. Demand for new homes fell 8.6%.

According to Krasner, the market relies heavily on buyers’ ability to marshal intergenerational wealth.

“This system works because most people in Israel who buy their first home get a down payment from their parents,” he said. “They probably can’t put together their own money, so older people who bought real estate many years ago and made a fair amount of money from it use some of that value to help their children. It’s obviously not a fair system, but it’s what happens, because some people don’t have parents who can give them that kind of money. “

The Departure Government sought to address the issue by launching a lottery program called the “Target Price”. Thousands of apartments It basically cuts off a portion of the down payment at a rate up to 20% below market value, allowing buyers to increase the loan-to-value ratio. It also focuses on increasing supply to lower prices. There are plans for 280,000 new homes over the next three years. Planners are expected Approve an additional 500,000 homes during that period.Housing begins It has already been uploaded on a large scale.

However, these moves are unlikely due to the high demand for housing and the barriers to stepping into real estate ladders. Significantly change the shape of the housing market..

“Having a home can continue to be restricted to those with very high salaries, or those who have access to a’mom and dad’s bank’-both offer the housing reforms we promised. It doesn’t seem to be, “Krasner said.

Workers are working at the construction site of a modern skyscraper in Tel Aviv, Israel. An example, April 2022. (Roman Mykhalchuk via iStock by Getty Images)

However, according to experts, changing housing borrowing limits could be a safe way to increase the number of homes you can buy today.

“There are many small changes to the system that the government and the Bank of Israel can make, which will help open up home purchases to more people,” Shapiro said.

Some of the proposed changes allow people who have enough income to borrow more than 75% of their asset value due to additional tariffs. This reduces the amount of down payment you need to provide and makes it easier for young people doing a good job to buy a home without putting a great deal of risk on the lender.

Another option is to allow mortgage lenders to choose how much of their monthly income can be reasonably paid as a mortgage, or at least be evaluated by bankers. Is to. At this time, this is determined by the bank on the basis of monthly household salary. But those with high incomes, more irregular incomes, large investments, or good prospects will probably pay more or pay more flexibly as they get older. Can be rented.

It benefits primarily to high-income earners, but another possibility is to allow individuals to take advantage of some separate, shorter, and perhaps more expensive personal loan to fund down payments and closing costs. Is to do.

Build more homesAs the government has promised, it can make a difference over time. However, according to industry experts, it is almost impossible for anyone to build a new home enough for everyone at an affordable price. Making a difference in the mortgage market could be a faster and more reliable way to increase access to homeowners for those who are still waiting to step into the door.

“All discussions focus on price,” Krasner said. “But almost certainly, these should continue to rise and instead accept to focus on helping people find their way to the ladder of property.”

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