New Israeli Banking Rules Tighten Loan Limits on Mortgaged Properties

Starting October 1st, Israeli banks will adopt a new regulation requiring them to consider all existing loans secured by a property when assessing new loan applications for that same property. Previously, many banks evaluated new loan requests independently, disregarding the existing mortgage. This change, mandated by an amendment to Bank of Israel directive 329, means that the total monthly repayment for all loans against a property will be factored into the borrower's debt-to-income ratio.

The new rule applies to all loans where the property serves as collateral, provided they have more than 18 months remaining until full repayment. This includes existing mortgages, new loans from the same or different banks, and even loans from non-bank entities. The calculation will count the monthly interest payment for bullet or balloon loans, the full repayment amount after any grace period for loans with grace periods, and the entire approved credit line amount even if only partially utilized.

This tightening of credit assessment is expected to impact individuals looking to take out additional loans for purposes such as home renovations, assisting children with purchases, or refinancing. For example, a household earning NIS 20,000 net per month with an existing NIS 6,000 mortgage payment could previously take out an additional loan with a NIS 2,000 to NIS 4,000 monthly repayment, depending on the bank's lending threshold. Under the new rules, this additional loan amount will be significantly reduced, as the existing mortgage payment will be factored into the debt-to-income calculation, potentially capping the new loan size.

The regulation was initially slated to take effect in July but was postponed by three months to allow banks more time to prepare. The Israeli mortgage market has been active, with approximately NIS 80 billion in new mortgages issued between January and August. The new rules will not affect first-time homebuyers who do not have prior debt on their property.