Insurance Firms Challenge Banks' Mortgage Dominance

Israeli insurance companies are aggressively entering the mortgage market, a sector long dominated by banks. Harel is expanding its mortgage operations with a dedicated company offering flexible payment terms, while Menora Mivtachim has already begun offering mortgages this year. Clal Insurance is also increasing its activity, and The Phoenix plans to enter the market through its credit arm, Gamma.

Currently, banks hold about 95% of the NIS 110 billion (approximately $30 billion) mortgage market. Insurance companies are not aiming to compete directly with banks on interest rates for young couples, but rather targeting customers with assets and repayment ability who require financing that banks may struggle to provide under their current structures. This includes individuals who have already leveraged their homes and need additional credit, a segment that will be more restricted by upcoming Bank of Israel regulations.

Starting October 1, new Bank of Israel regulations will alter how banks calculate borrower repayment ratios, making it harder for existing homeowners to secure further loans against their property. Insurance companies, not subject to these specific rules, are positioned to offer alternatives. Harel, for instance, is offering up to 80% financing, deferrals on principal payments for up to ten years on a portion of the loan, and repayment periods of up to 40 years on loans up to 60% of the property value, exceeding typical bank limits.

Industry insiders express concern that the regulatory gap between banks and the non-bank credit sector could shift risks within the financial system rather than eliminate them, potentially leading to a "subprime" scenario if lending standards are not rigorously maintained. Harel executives, however, argue that institutional investors have long-term funding, robust underwriting systems, and strong brands that enable them to select lower-risk clients, emphasizing that the true test of their long-term success will be in managing credit losses over time.