"The interest rate hike affects borrowers who took prime-linked mortgages, but the additional NIS 150 a month will not affect people who don’t pay mortgages or won't buy homes. In historical terms, the interest rate is low. In absolute terms, mortgage repayments have risen sharply, but, on the other hand, people's ability to pay has also risen and business has improved," Union Bank of Israel (TASE: UNON) CEO Haim Freilichman told "Globes".
"Globes": Is there a scenario of massive default by borrowers?
Freilichman: "I don’t think so. Even in hard times and at much higher interest rates, customers paid and the default rates were low in global comparison. In contrast to the US, borrowers have personal liability and the banks check their income and ability to repay. There will be defaults, but at the margins. There won't be a national catastrophe."
What is the average financing rate that you give?
"The current loan-to-value ratio is below 60%, so there would have to be a catastrophe to affect the bank. In any case, the test is the borrowers' ability to pay, but the value of the properties."
Have Governor of the Bank of Israel Prof. Stanley Fischer's macro-prudential measures to cool the market failed?
"If the intention was to affect the real estate market through mortgages, the answer is that the Bank of Israel did not succeed. But in a broader perspective, there has been a halt in activities by buyers groups and buyers of apartments for investment. Financing rates have also been tightened, and we've seen a drop in high financing rates. When taken together, there has been an effect."
There were NIS 60 billion in mortgages last year. What will happen in 2011?
"There's been some cooling, and we'll feel it even more toward the end of the year. Prices have braked and there's no longer a stampede for every project. Next year, we'll see a drop in the number of transactions and in the size of new mortgages."
Published by Globes [online], Israel business news - www.globes-online.com - on April 20, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011