The banking system yesterday expressed surprise at the sharp message from the Governor of the Bank of Israel

The banking system yesterday expressed surprise at the sharp message from the Governor of the Bank of Israel, Prof. Amir Yaron, regarding mortgage prices in the prime route. The Bank of Israel issued a statement on Tuesday stating that it is not satisfied that the abolition of the mortgage limit has not been rolled out as expected by customers in terms of price, and that it is considering taking action against the banks if the situation does not change.
Sources in the banking system point out that following the threatening message, there was already a certain decrease in the quotes of mortgage offers yesterday. However, the banks understand that this is not enough and they hold talks with the Bank of Israel and transfer data to it. It is estimated that in the coming days the parties will adjust expectations and it is possible that next week we will see a more significant change in price levels. "The goal is to reach an understanding as soon as possible, so that equilibrium will be reached by the end of the month, when the relief will take effect for the mortgage refinancers - a key target audience that should benefit from the change," said a source at one of the banks.
The mortgage in the prime track is the cheapest part of the mortgage, and in practice it is subsidized by the other tracks. The Bank of Israel's relief led to an increase in the subsidized portion of the mortgage, but the banks did not want this to hurt their profitability, and therefore raised interest rates in this route.
The Bank of Israel did expect the interest rate in the prime route to rise as a result of the relief, but not by such a sharp rate. For example, while in a mortgage under the old limit the interest rate was prime minus 0.5%, in mortgages of two thirds in prime, the interest rate has already climbed to prime plus 0.2% on average. Thus, instead of expecting a reduction of hundreds of shekels in the monthly repayment of the mortgage, in practice it dropped by an average of only tens of shekels. As far as is known, the Bank of Israel did not like the situation in which in some cases banks offered a mortgage up to a third at a low prime interest rate, but when the weight of the prime route rose to even 35%, they already made a significant jump in interest rates.
Banks are now beginning to realize that they will not be able to maintain a level of profitability similar to that of pre-relief. The banks point out that a reduction of hundreds of shekels in the monthly repayment of the mortgage means a decrease of hundreds of millions of shekels a year in income from this field.