Bank of Israel Tightens Loan Rules, Halving Borrowing Power for Some

The Bank of Israel is set to implement a significant change in lending regulations starting October 1, 2026, which will substantially reduce the amount of credit families can borrow against their existing homes. The new directive from the Banking Supervision Department, an update to directive 329, alters how banks calculate a borrower's repayment capacity. Previously, existing mortgage payments were deducted from net income to determine available funds for a new loan. Under the new rules, existing monthly loan repayments will be counted twice: they will continue to reduce disposable income and will also be factored into the maximum allowable repayment ceiling, which is generally capped at 50% of disposable income.

This dual counting mechanism means that for every shekel of an existing loan repayment, only half a shekel will be available for new loan repayment capacity. The practical effect is a sharp reduction, potentially by tens of percent, in the maximum loan amount approved by banks. For instance, a family with a net monthly income of NIS 20,000 and an existing NIS 6,000 mortgage payment, seeking an additional loan, could previously borrow approximately NIS 856,000. After October 1, 2026, their borrowing capacity against the same property will drop to around NIS 401,000, a reduction of about NIS 455,000.

This change is expected to significantly impact families planning to assist children with their first home purchase or undertake major renovations. However, the new rules include exceptions. Existing loans and mortgages will not be affected. New loans for general purposes up to a cumulative amount of NIS 120,000 are exempt from the new repayment-to-income ratio (PTI) limit. Additionally, short-term loans with less than 18 months remaining until repayment, and bridging loans of up to three years, are also excluded from the stricter calculation.

Families needing to secure additional credit against their property are advised to apply for and receive a preliminary approval from their bank before September 30, 2026, to be subject to the older, more lenient regulations. The Bank of Israel's decision on interest rates remains unchanged, with the governor maintaining the current rate to balance price stability and household relief. This new directive, however, is a separate measure aimed at increasing oversight of credit risks within the banking system.