BOI Cites Mortgage Market As Biggest Risk to Economy

Signing on for a mortgage loan.  (Yossi Zamir/Flash90)
Signing on for a mortgage loan. (Yossi Zamir/Flash90)

The Bank of Israel has named the problematic housing market as the biggest risk to the country’s financial stability, Globes reported on Monday.

In its Monetary Report for the second half of 2014, the BOI states plainly its concern that a rise in interest rates could make it difficult for mortgage takers to make their monthly repayments: “One of the main risks to financial stability created by the low interest rate environment involves the stimulation of demand for credit and the fear that when the interest rate eventually begins to rise borrowers will find it difficult to repay their debt.”

However, the outlook is better than it might hve been, if not for measures taken by the Supervisor of Banks in recent years contain the risk.

The report mentions a fall in the risk level in the home mortgage market thanks to the mix of the banks’ mortgage portfolios, and a fall in the loan to value ratio, again as a result of the mortgage restrictions that have been introduced by the Supervisor of Banks.

The Bank acknowledged that mortgage market considerations have been a factor weighing against reducing the interest rate, but that the mortgage restrictions give it greater room for maneuver.

The decrease in the price of oil was viewed as favorable to the Israeli economy, both directly by reducing energy costs, and indirectly by raising global demand: “The economy’s principal export destinations are oil importers,” the report says.

The only major drawback the BOI found is a possible loss of incentive to explore for new Israeli gas fields and to develop existing ones.

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