The Bank of Israel today warned about the possible effects of interest rate hikes on the mortgage market and about possible consequences of a substantial fall in home prices. The warning appear in excerpts from the "Annual Survey of Israel's Banking System, 2009", which focuses on stress tests for banks.
The Bank of Israel said, "During the last two years, housing prices have increased significantly in Israel following a long decline over a period of 10 years, and some of the purchases and transactions involve apartments for investment purposes.
"In Israel, the average loan-to-value ratios (LTV) and the average debt burden are low relative to accepted levels in the developed countries. Nonetheless, the realization of a scenario involving a significant drop in housing prices together with a decline in household income will likely lead to the sale of apartments at prices lower than the mortgages taken out for their purchase, and hence to an increase in the loss rates of the banks from their housing credit portfolios."
The Bank of Israel pointed out, though, "We do not foresee a direct threat to the stability of the banking system from the realization of such a scenario."
Published by Globes [online], Israel business news - www.globes-online.com - on July 14, 2010
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