The Ministry of Finance is opposed to MK Orly Levi-Abekasis's bill to allow the grant of mortgage housing loans of up to 90% of the value of the property for first-time buyers, combined with a state guarantee. In the past, the Ministry of Finance drew up a document that has reached "Globes" in which the ministry sets out its objections to such a proposal.
"Assistance via mortgage guarantees represents unnecessary and wrong intervention," the document states. "The decision would not only in the first place support only those with the wherewithal to purchase a home, but it completely ignores those without resources," the Ministry of Finance writes, referring to the provision in the bill that offers the financing to those earning at least NIS 10,000 monthly.
The ministry lists several reasons for its opposition. First of all, it argues that the proposal would lead to a rise in home prices. "Accepting the bill represents in our opinion a sure way to generate a rise in prices of homes. Implementation of the bill will lead to an immediate rise in demand, alongside the inelasticity of supply in this sector. What is more, implementation of the bill will skew demand towards buying larger and more expensive apartments, in order to benefit from higher guarantees."
The ministry also warns of the effect of high leverage. "The bill is liable to represent an incentive to buyers to take a loan higher than their repayment capacity, in reliance on the state guarantee, increasing the likelihood that the borrower will not repay the loan."
Of course the ministry also objects to the budgetary exposure it will have to absorb. "The annual rate of guarantees that the state will have to issue will amount to billions of shekels, giving rise to huge exposure," its document says.
Levi-Abekasis's bill is being promoted together with other members of her Israel Beitenu party. Her aim is to enable first-time buyers to buy homes with equity of only 10%, instead of the 25% currently required.
In an article in "Globes" this week, Levi-Abekasis justifies her proposal by saying, among other things, "Because of the problem that exists today in obtaining mortgages, those young people who do not have the equity have no choice but to enter into convoluted arrangements of loans on top of loans from friends, family, and from two or three different banks. What everyone, including the Ministry of Finance, knows but ignores is the fact that many of those unable to raise equity go to the grey market and take loans at murderous rates of interest, and it happens openly, every day."
Published by Globes [online], Israel business news - www.globes-online.com - on November 13, 2014
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