Israeli Mortgage Uptick Continues, Driven by Prime Rate Loans

Housing mortgage approvals in Israel reached NIS 10.9 billion in August, bringing the year-to-date total to NIS 79.6 billion, a 13.8% increase compared to the same period last year. These figures suggest 2026 may set a record for mortgage volumes, according to Bank of Israel data. Concurrently, bridging loans decreased as a percentage of total housing loans, falling from 13.9% to 13.0%, while loans for any purpose remained stable at 4.7% of total disbursements.

Alongside high mortgage volumes, loan compositions are shifting. The average weighted interest rate rose slightly to 4.38% in August from 4.34%, though it remains relatively low after a cumulative drop since January. Mortgage consultants note that the full impact of rising bond yields and bank interest offers may not yet be reflected in the data. Notably, the interest rate for indexed loans in the 10-15 year range saw a significant increase of over half a percent.

Borrowers are increasingly favoring the prime rate option, which rose from 22% to 24% of new loans, likely due to recent interest rate cuts by the Bank of Israel. This shift comes at the expense of non-indexed variable rate loans. Consultants suggest this indicates borrowers anticipate further rate decreases, despite the variable nature of prime rate repayments. The preference for fixed rates is also evident, as the public is willing to pay a premium for the security of a fixed monthly payment, avoiding exposure to inflation spikes.

Meanwhile, indexed mortgage loans fell below 10% of all new mortgages for the first time in August. This trend, according to consultants, reflects increased borrower financial awareness and a reluctance to assume the risk associated with index-linking, particularly after a period of high inflation. Borrowers are now considering not just the initial interest rate but also the potential for increased principal and repayments due to index fluctuations, making other loan types appear more attractive in the current interest rate environment.