Bank of Israel decided not to allow a loan to be used as equity to purchase an apartment in Israel

Due to the peak data in the mortgage market, the Bank of Israel announced today that it has finally decided not to allow a loan to be used as equity to purchase an apartment. At the same time, it will be possible to take such a loan as a bridging loan for housing developers, until the end of the process of selling their existing property.
That is, this prohibition will be particularly relevant to investors who are in fact leveraging an existing asset to purchase an additional asset. It should be noted that the activity of investors in the real estate market has increased in recent months, and this step may cool their activity to some extent.
In addition, the Bank of Israel has decided not to extend the two mortgage concessions granted at the beginning of the Corona crisis, and they will end at the end of September. This is a relief that made it possible to take out a loan in exchange for mortgaging an existing apartment at a value of 70% of the value of the property, and at the end of September it will return to the rate it was before the crisis - 50% of the value. Another relief that will not be extended is a relief regarding the capital requirements from the banks, which was supposed to prevent credit crunch - a situation that certainly does not exist in the mortgage market in light of the peak data.
The steps announced today by the Supervisor of Banks are not dramatic, and it is doubtful whether they will stop the record data we have seen in recent months in this market (in June, mortgages of over NIS 11 billion were taken within mortgages, an all-time record).
A few weeks ago, it was announced that the Bank of Israel was considering a directive that would prohibit taking a loan on an existing property mortgage, the purpose of which is to provide equity for the purchase of a new property. This directive has provoked criticism, claiming that it is a common practice for housing developers, which bridges the period in which they purchased a new property, and have not yet sold the previous one.
Therefore, in the end, the Bank of Israel formulated an outline according to which housing improvers will be able to take out such a loan. A condition has been set, according to which the loan period will not exceed the maximum period during which the borrower is required to sell his existing apartment according to the guidelines of the Tax Authority, which currently stands at 24 months. When purchasing an apartment from a contractor, the bank may renew the bridging loan up to a period of 12 months from the date of the actual delivery of the property to the borrower.
The Supervisor of Banks, Yair Avidan, said, "I am happy that after an ongoing dialogue we are able to find an outline that allows the activity of housing improvers to operate alongside a certain restriction to those who purchase for investment purposes and who are not housing improvers. "In addition, we do not intend to extend the validity of the two concessions given in the face of the corona - returning them to a situation similar to the eve of the crisis, is part of the process of economic recovery and adaptation to economic management alongside the virus."