The mortgage market in Israel is young when compared to other markets such as the US, UK, Canada, etc. Today’s mortgage market in which the Israeli banks are lending their own funds instead of just using the government’s funds essentially started in 1990. The market in the US as well as other countries date back more than a century.
Growing pains are a part of the growth process— whether it’s a child’s body growing to adulthood or organizations, companies or societies going from inception to maturity.
The Israeli mortgage market is no different. Since 2010, the Bank of Israel has been introducing new regulations more frequently than ever before. Although this was the Bank of Israel’s response to the financial crisis of 2008, it was the first major crisis the Israeli mortgage market (in its current state) witnessed, albeit in another country (the last crisis in the US mortgage market was in 1989-1992 when the market in Israel was still in birthing pains). A number of these regulations fundamentally changed what the Israeli mortgage banks could do, including what is required from a borrower in order to qualify for a mortgage as well as who could even qualify. Over the past year, the pace of regulatory reform has slowed down considerably; it is no coincidence that one of the people at the Bank of Israel who was a driving force for most of these regulations, David Zaken, stepped down from his position in 2015.
It seems that a new trend of change has started, and this time it is not originating from the Bank of Israel; it is originating from the banks themselves. The changes were initially isolated and subtle, but as I have seen it across a number of banks, it seems to be characteristic of a trend. While inflation in Israel and interest rate markets have been dancing around steady increases (meaning there is a steady trend of increased inflation, then interest for a period of time, then it abates), the banks across the board are now increasing interest rates as if interest rates will keep going higher. (We will only know in the winter if this increase in interest was seasonal, but it is much greater than previous such seasonal increases, e.g. in the summer of 2013 interest rates increased by 0.20%-0.30%. Over the past couple of months it has been between 0.75% and more which is characteristic in a market where the long term trend is increasing interest rates.) The amount of documentation required has increased (this follows the regulatory trend of the past few years). The banks have also changed the procedures of how they work with borrowers who come from mortgage brokers and, in some cases, which branches mortgage brokers can work with.
There are changes in the wind which are affecting the mortgage market in Israel. How long they will last and how much farther they will go I cannot tell you. As the famous quote goes, “The only thing that is constant is change.” This is true of the Israeli mortgage market. The question then is what to do and, if anything, how to prepare.
My advice to Israeli consumers who either need a mortgage now or may need a mortgage in the next year is start the process early — start now. Get pre-qualified by an experienced, competent mortgage professional as soon as you can (We offer this at Moville Finances as a free service). Regardless of who you use, keep in mind that you will need documentation in hand; just stating your income and assets will not be sufficient. So start collecting the documentation needed for qualification. This will include, in most cases, the last 24 months of income. Regarding asset documentation, depending on your situation, this may be just statements covering the last three months of your Israeli bank account activity. If you have other assets such as overseas bank accounts or investment portfolios, real estate, etc., you will need to provide documentation for these. If you are a recent oleh, in most cases, your credit history will be important (This is especially true for olim from the US as well as other similar economies but not relevant for olim from France). These next few months are always transitionary in the market; the summer buying season moving into the famous period when everything will happen “acharei HaChagim,” or after the holidays.
To summarize, whether you are planning on buying a property, or you want to refinance a property you own in order to take out cash for construction or another purpose, give yourself much more time than you think you’ll need (yes even six months to a year). Besides the process of qualifying for a mortgage, you will also want to understand all of the mortgage options you do qualify for, which is best suited for you and why. Each borrower should know the questions to ask and make sure they are getting credible answers because, while change is blowing in the wind, the answers are not (sorry Mr. Dylan).
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