Israel Tightens Mortgage Lending Rules Amid Record Loan Volumes

Israeli banks have issued approximately 80 billion shekels in mortgage loans during the first eight months of 2026, with an annual lending pace reaching 120 billion shekels. This surge suggests the current year could surpass the record volumes of 2021 and 2022, when mortgage lending reached 116 billion and 118 billion shekels, respectively, despite significantly lower interest rates at that time. Financial publication "Globes" reports that the current demand is fueled by both developer financing programs, such as the "20/80" deals for off-plan purchases, and borrowers' efforts to secure loans before new Bank of Israel restrictions take effect.

Starting October 1, 2026, a new directive from the Bank of Israel will impose stricter criteria on the debt-to-income ratio for mortgage applicants. Under the new regulations, banks will be required to conduct a thorough review of all a client's housing obligations. A mortgage will not be approved if the total monthly payments for all existing housing loans exceed 50% of the borrower's net income. In practice, due to supervisory requirements for additional capital reserves in high-risk scenarios, banks are expected to set the maximum payment threshold at 35%-40% of net income.

Furthermore, the Bank of Israel is preparing to approve another measure targeting the practice of "borrower inversion" (mishkan le-hiuv shel acher). This mechanism allows parents to act as primary borrowers for their children's property purchases, enabling lower interest rates due to the parents' higher income. The proposed regulation would count only 50% of the parents' income towards the calculation of borrowing capacity, a reduction from the previous 100%. Experts anticipate this change will disproportionately affect participants in government subsidized housing programs and young families with lower incomes.