BoI further eases household loan conditions

Governor of the Bank of Israel Amir Yaron, Supervisor of Banks Hedva Ber / Photo: Rafi Kotz, Globes

Restrictions will be relaxed for people on unpaid leave seeking mortgages and for any-purpose loans secured on homes.

The Bank of Israel Banking Supervision Department has announced two additional regulatory relaxations to help borrowers during the economic disruption caused by the Covid-19 outbreak. The first concerns employees who have been put on leave without pay, and the second makes it easier for people to obtain loans for any purpose secured on their homes.

Up to now, the payment-to-income ratio for mortgages has been restricted to 50% of total household income. At present, this limit is liable to be a barrier to obtaining a mortgage, and in some cases could mean that mortgagors fail to meet the conditions of an existing mortgage.

The Bank of Israel has therefore, as a provisional measure, decided that banks will be allowed to grant mortgages on the basis of a person's income before they were put on unpaid leave, on certain conditions: that the excess over the payment-to-income ratio limit is due to a decline from the borrower's income level before they were put on unpaid leave or reduced to part-time work because of the coronavirus outbreak; that in the bank's estimation the borrower will return to his or her job once the crisis is over; and that the payment-to-income ratio while the borrower is on unpaid leave does not exceed 70%.

For the purposes of allocating capital against the mortgage loan, the bank will be allowed to calculate the payment-to-income ratio on the basis of the borrower's income before they were put on unpaid leave. This prevents an increase in the capital adequacy requirement relating to mortgages, and should thus prevent a rise in the interest rate charged to the borrower.

The second relaxation concerns people who seek an any-purpose loan secured on their property. Over the years, the Banking Supervision Department has required a higher capital allocation by the banks against such loans, but this will not apply for the present. Again, this should help to keep interest rates on these loans in check.

Published by Globes, Israel business news - en.globes.co.il - on April 21, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Governor of the Bank of Israel Amir Yaron, Supervisor of Banks Hedva Ber / Photo: Rafi Kotz, Globes
Governor of the Bank of Israel Amir Yaron, Supervisor of Banks Hedva Ber / Photo: Rafi Kotz, Globes
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