Rising Mortgage Risks Highlighted by Loan-to-Value Ratio in Israel

The Loan-to-Value (LTV) ratio, which measures the loan amount against the value of the property used as collateral, has become a key indicator of risk in Israel's mortgage market. The State Comptroller's recent report warned of increasing risks in the mortgage sector, despite Bank of Israel's strong opposition to some of the claims. LTV is crucial because higher ratios indicate greater risk, requiring banks to allocate more capital against the loan.

Bank of Israel regulates mortgage lending by setting maximum LTV limits based on the property's purpose: up to 75% for a primary residence, 70% for a replacement home, and 50% for investment properties. Borrowers must provide the remaining amount as equity. These limits are more conservative than in many other countries, where typical LTV ratios range from 80% to 90%. Temporary relaxations were introduced during the COVID-19 pandemic and the recent Iron Swords war, allowing up to 70% financing for all purposes, with a cap of 200,000 shekels above the 50% threshold.

The Comptroller's report defines high-risk loans as those with an LTV above 60%. Data shows that the share of such loans increased from about 20% in January 2022 to approximately 31% by July 2025. Bank of Israel's 2025 banking system report also noted a rise in credit risk in housing loans, partly due to higher financing ratios and repayment burdens. However, it emphasized that risk indicators remain historically low overall.

This analysis underscores the importance of monitoring LTV ratios as a measure of mortgage market stability and the potential impact on the broader economy. The ongoing regulatory adjustments aim to balance credit availability with financial system resilience.