Supervisor of Banks Dudu Zaken on Monday issued new restrictions to mortgage banks regarding the amount of money a home purchaser must put down, and how much a bank can finance a home for.
Beginning in November, banks will be able to finance only up to 70% of the cost of a home with a mortgage. That is the maximum possible mortgage; the Bank of Israel would prefer to see mortgages of no more than 60% of the value of a home. Homebuyers will have to either come up with the rest in a down payment, or use other vehicles if they wish to borrow more money.
An exception will be made for individuals or families that have never owned a home before; they will be able to borrow up to 75% of the cost of a home. In addition, if a buyer already owns an apartment or home and is not selling it in order to buy a new home, and intends to hold onto it as a second property, banks have been instructed not to provide them with more than 50% of the cost of a home.
Until now, there was no limit on the size of a mortgage a homebuyer could get for any property. The rules apply to both Israelis and foreign residents.
The rule change is perhaps the most ambitious – and certainly the harshest – measure that the government has taken to lower housing costs. In a statement, the Bank of Israel said that in the past few years, easy credit has encouraged many more people to buy properties, and has fueled the sharp rise in housing prices in Israel. In addition, the Bank said, the rule change will help Israel avoid the types of housing and property bubbles that have caused havoc in economies around the world, from the U.S. to numerous European countries, to China.