Bank of Israel Tightens Loan Rules to Curb Household Debt

Starting October 1, the Bank of Israel will implement new regulations aimed at curbing household over-leveraging and bolstering the stability of the banking system. The changes focus on how banks calculate a borrower's debt-to-income ratio for loans secured by existing assets, such as a home.

Previously, when a borrower sought an additional loan using their home as collateral, banks assessed their repayment capacity based on income remaining after their existing mortgage payment. Under the new rules, banks must now sum the total monthly payments for both the existing mortgage and the new loan. This combined amount will be calculated against the borrower's net income to determine the debt-to-income ratio (PTI).

The Bank of Israel mandates a maximum PTI of 50%, but a ratio exceeding 40% triggers stricter capital requirements for banks, making loan approval more difficult and expensive. This change means that many borrowers who might have previously qualified for additional loans could now receive lower amounts or be denied outright.

For instance, a family with a net monthly income of NIS 20,000, paying a NIS 6,000 mortgage, and seeking a new loan with a NIS 4,500 repayment would have previously been assessed based on the remaining NIS 14,000 income, resulting in a PTI of about 32%, likely leading to approval. Under the new system, the combined payments of NIS 10,500 represent 52.5% of their net income, exceeding the limit and resulting in loan rejection.

Data from the Bank of Israel shows that in August 2026, the average PTI for new loans secured by property was approximately 24% of disposable income, totaling about half a billion shekels monthly. The average PTI for regular mortgages stood at 29.2%. Experts warn that these new combined calculations could push borrowers towards more expensive non-bank lending channels, as individuals seeking credit to consolidate high-interest debts or assist family members may be denied bank loans.