The main risk for households in crisis is in mortgages


“The main financial risk for households is in housing credit, due to the amount of the balance. The decline in household income is expected to increase the monthly repayment rate from income and make it harder for some mortgage borrowers to service the debt,” the Bank of Israel wrote in a report released today. Financial stability, which will be published in full soon, with reference to the consequences of the corona crisis. It should be noted that the Bank of Israel has allowed the mortgage payment to be frozen until the end of 2020. At the same time, the Bank warns of a possible danger to the banking system: The house and the financial stability of the banking system. “

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The mortgage market has grown sharply in the last decade, and its total debt exceeds NIS 380 billion, with traditionally the main risk factor being unemployment. The Bank of Israel carefully selects words, explaining the potential risk inherent in this market following the corona crisis: “A decrease in household income may increase the monthly rate of return on income, which is a key variable in assessing a borrower’s probability of insolvency.”

(Archive photo) Photo: Shatterstock

The Bank of Israel notes that today there are almost no mortgages in which the monthly repayment constitutes over 40% of the household income, and the monthly repayment rate of the income in about 60% of the mortgages currently granted is less than 30%. Therefore, in the opinion of the Bank of Israel, even if household income fell by 20% as a result of the crisis, there is no material risk. “A stronger drop in income can lead to a risky increase in the monthly repayment ratio of the mortgage out of the income, but even that in a relatively small proportion of mortgages.”

“The main threat to the mortgage portfolio stems from the impact of the crisis on borrowers’ ability to repay as a result of an increase in the probability of remaining unemployed. 2021 and in the more pessimistic scenario of 11% and 9%, respectively, very far from the situation that prevailed before the crisis, “the Central Bank notes.

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