Israel Tightens Mortgage Rules Amid Record Lending

Israeli banks have issued 80 billion shekels in mortgage loans in the first eight months of 2026, projecting an annual lending rate of 120 billion shekels. This volume could surpass the records set in 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 surge in demand is driven by both developer financing programs, such as the "20/80" offers from a few years ago for off-plan purchases, and borrowers' efforts to secure loans before new Bank of Israel restrictions take effect.

Effective October 1, 2026, the Bank of Israel will implement new regulations tightening requirements for the debt-to-income ratio (PTI). Under these rules, banks must conduct a thorough review of a client's total 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 for high-risk loans, banks are expected to set an upper payment limit between 35% and 40% of net income.

Additionally, 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, leveraging the parents' higher income to secure lower interest rates. 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 primarily affect participants in government subsidized housing programs and young families with lower current incomes.