Leumi clamps down on loans for contractors' offers

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An internal directive recently issued by the bank sets that in a contractor deal, a payment of 20% equity from the customer will now be required, and that the contractor's balloon loan will be limited to up to 40%.

After a period in which it has targeted the mortgage market and increased its market share to 30%, Bank Leumi (TASE: LUMI) appears to be the first Israeli bank to clamp down on the building contractor offers that have been fueling the real estate market in recent months. An internal directive recently issued by the bank sets that in a contractor deal, a payment of 20% equity from the customer will now be required, and that the contractor's balloon loan will be limited to up to 40% of the value of the apartment. "Globes" has learned that customers with an existing in-principle approval will not be subject to the new limitations.

This measure will torpedo many of the contractors' deals that are currently being completed, which requires only 10% equity from buyers and sometimes even less, in many cases, against a contractor's loan. Market sources believe that following Bank Leumi's move, other banks will introduce similar measures, as part of efforts led by the Bank of Israel to "cool down" the increase in the level of contractor loans out of the total number of new loans taken in the housing market.

Bank Leumi said, "Bank Leumi always sets the terms of each deal in a professional way while carefully managing risks and paying attention to the details of each deal and of each developer, emphasizing the Bank of Israel's guidelines on the matter."

It should be stressed that Bank Leumi itself, as far as contractors' loans are concerned, has been careful to carry out only 80/20 (20% equity) transactions over the past year. In other words, the bank has been careful not to allow contractors who work for it to approve more "generous" 90/10 transactions. Leumi insists it is careful to follow Bank of Israel instructions on terms required to support projects.

Published by Globes, Israel business news - en.globes.co.il - on November 13, 2024.

Eyal Izhar