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"The restrictions imposed by the Bank of Israel on mortgages during 2011 raised the cost of mortgages, and were therefore most effective among first-time homebuyers who most needed a mortgage," says the Bank of Israel's Research Department, ahead of the publication of the Bank of Israel Report. The study published today also reveals new findings about the investment housing market in the past few years.
In response to the sharp rise in home prices, the Bank of Israel introduced several measures, which its own economists say were "mainly directed at reducing the risk of a sharp rise in monthly mortgage payments paid by people with variable interest mortgages". These restrictions mostly affected young couples and poor families, resulting in sharp public criticism.
The study also states that the increase in the purchase tax on second homes, levied in 2011, was a negative incentive to buyers of homes for investment, and therefore had a greater effect than the mortgage restrictions.
The study finds that only half of buyers of homes for investment need a mortgage, compared with more than 90% of buyers of homes for residence. Furthermore, the size of mortgages taken by buyers of homes for investment was 8% less than the size of mortgages taken by buyers of homes for residence.
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