Monday, May 24, 2010

Borrowing becoming more difficult going forward

Homebuyers will be allowed a mortgage up to 60% of the price of a property instead of 70%. The Bank of Israel has issued stricter mortgage instructions to the country's banks. In an effort to slow the pace in the rapid rise in the prices of homes over the past few years, Supervisor of Banks Roni Hizkiyahu today published new guidelines for mortgages.

According to the new instructions, homebuyers will be allowed a mortgage of only up to 60% of the price of a property instead of 70%. Banks going above 60% will be required to set aside 0.75% of credit extended for doubtful loans.

The new instructions will in effect mean that homebuyers will need 33% more equity in order to buy a property because they will be required to find 40% of the value of the home instead of 30%. Banks wanting to give mortgages above 60% will likely charge as much as 1% or even 1.5% higher interest rate in order to comply with the extra expense involved due to the new doubtaful debt guidelines.

The Bank of Israel said, "There is no bubble in the housing market and we will make sure that there won't be."

Source Globes

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