Directive regarding the removal of restrictions on providing variable rate housing loans – effective date
It is emphasized that other restrictions on housing loans remain in place, including the loan to property value (LTV) ratio, the monthly payment to household income (PTI) ratio, and the restriction on the part of the loan that can be taken out at a variable interest rate, according to which at least one-third of the housing loan shall be issued at a fixed rate, and up to two-thirds can be issued at a variable interest rate.
The implementation of the directive requires operational and technical adjustments in the banking system. As such, the following is the expected timetable for the directive to come into effect:
1. Those taking out a new housing loan- The directive will take effect on January 17, 2021.
2. Those refinancing an existing housing loan – Due to the potential operational overload, and in order to enable the banking system to properly prepare, the cancellation of the restriction regarding a housing loan intended for early repayment (at the bank where the loan was taken out or through another bank), will come into force on February 28, 2021.
As a complementary measure, the Bank of Israel is currently examining the calculation method and fee levels for early repayment of housing loans, which will lower the cost of refinancing the mortgage for borrowers who choose to take this step. A revision of the early repayment fee mechanism requires consulting with the Ministry of Justice and approval by the Minister of Finance and the Knesset Finance Committee. This process is expected to advance during 2021.
Supervisor of Banks Yair Avidan said, “We have taken this measure with the desire to make it easier for borrowers, with a risk-based systemic view that balances management of individual risk with management of risks in the housing portfolio of the entire banking system and other macroeconomic variables.
“The cancellation of the restriction has the power to increase the flexibility and variety of options available to borrowers, and also to somewhat lower the cost of monthly mortgage payments. In parallel, it is important to re-emphasize the need for the borrower’s careful consideration when choosing a mortgage plan in order to take the existing costs and risks of each possible track into account with a forward view.”