Israel Tightens Mortgage Rules, Limiting Borrowing Capacity

Starting October 1, 2026, Israeli banks will implement stricter regulations for mortgage approvals, requiring a comprehensive assessment of borrowers' total housing debt rather than just new loan payments. This change, mandated by the Bank of Israel, aims to curb a significant surge in mortgage lending, which reached 80 billion shekels in the first eight months of 2026 and is projected to hit 120 billion shekels annually. The new rules stipulate that the total monthly payments for all housing obligations cannot exceed 50% of a household's net income. However, due to banks' internal capital requirements, the effective limit may be as low as 35-40% of net income, potentially reducing borrowing capacity even for those with high incomes.

For example, a family earning 20,000 shekels net monthly could have their total housing payments capped at 8,000 shekels if banks adhere to a 40% internal limit. If they already have a 5,000 shekel monthly payment on an existing loan, only 3,000 shekels would be available for a new mortgage, making it difficult to secure additional financing.

Additionally, a proposed regulation, still under development, would limit the contribution of parents' income to 50% when they co-sign mortgages for their children. This measure is intended to reduce reliance on parental income for younger buyers and those in government housing programs, potentially decreasing the size of mortgages available to them.

These new requirements are not expected to halt mortgage lending entirely but will likely reduce the maximum loan amounts for some buyers and make new loans unattainable for others without increased income or reduced existing debt. The changes are particularly relevant for individuals seeking to purchase additional properties, those already servicing housing loans, or those planning to use parental assistance for their mortgage.