State Auditor Flags Excess Mortgage Fees, Conflicts of Interest and Housing Credit Risks

Israel’s State Comptroller says mortgage consultants have in some cases charged fees equal to 10% of the loan, plus VAT, a sum that can exceed 100,000 shekels on an average mortgage. The report, published Wednesday, argues that the absence of regulation has left homebuyers exposed to excessive charges and biased advice in a market with about 2,000 to 2,500 consultants, while use of consultants rose to 61% in 2025.

The report says the business model creates a built-in conflict of interest: consultants charge clients directly and, at the same time, receive commissions, bonuses, gifts and even overseas trips from nonbank lenders and institutional bodies for referrals. It warns that this pushes recommendations toward nonbank credit, which is usually more expensive than bank lending and less transparent. In low socio-economic localities, 73% of borrowers used an outside consultant, compared with 56% in stronger areas. The Comptroller also notes that in 2024 only 37% of mortgage borrowers compared offers from more than one bank, down from 44% in 2015 to 2017, despite Bank of Israel’s August 2022 transparency reform requiring three standardized loan packages.

The audit also criticizes the Bank of Israel’s handling of housing debt risk and contractor subsidized mortgage deals. It says the 50% repayment-to-income cap has been frozen since 2013, that the old method allowed borrowers to appear within limits while total debt on the same property kept rising, and that the updated property-based calculation will only take effect in July. On contractor subsidies, the report says the regulator’s 2023 to 2025 steps did not curb the surge in 20/80, 10/90 and balloon-loan offers, which by June 2024 accounted for more than 60% of transactions in some periods. The Bank of Israel rejected the findings, calling the report “unprofessional, full of errors and contradictions.”

The Comptroller also criticizes the National Economic Council for proposing mortgage subsidies without solid empirical backing, and says a planned compensation scheme for households hit by rate hikes would cost about 2 billion shekels a year, or 10 billion over five years. It warns that excluding charity loan data from the credit database leaves lenders unable to see the full leverage of many ultra-Orthodox households, where mortgage payments rose 13.5% in 2020 to 2022, and says the Arab sector receives only about 2% of mortgages despite being 20.3% of the population, with many borrowers forced into expensive private or informal credit.