Young Israelis Rely on Parental Aid to Buy Homes Amid High Prices

Young couples in Israel continue to face a significant gap between apartment prices and available down payments, even with moderating price indices. To bridge this gap, many rely on financial assistance from their parents, typically in the form of gifts, family loans, or parental guarantees for mortgages. These methods not only influence the loan amount from the bank but also introduce financial risks for both generations.

According to Bank of Israel regulations, first-time homebuyers can finance up to approximately 75% of a property's value with a mortgage, requiring a down payment of about a quarter of the price. For a 2 million shekel apartment, this means needing around 500,000 shekels before taxes and additional costs. When a buyer's savings fall short, parental financial transfers or a guarantor become essential for the transaction. Additional costs like appraisal fees, legal services, and purchase tax further increase the required upfront capital.

Parents can assist through outright gifts, which increase the down payment and reduce the mortgage sum. However, these require clear documentation for banks and tax authorities to distinguish them from loans. Family loans, while potentially more flexible than bank loans, create a debt obligation between generations that can strain finances if the children's employment situation changes. The third option, parental guarantees, allows banks to consider a portion of the guarantor's income when assessing repayment ability, potentially increasing the eligible mortgage amount. This can enable a larger loan without parents co-owning the property, though guarantors are liable if the borrower defaults, potentially impacting their own credit rating and ability to secure future loans.

Despite some moderation in annual apartment price increases, overall prices remain high relative to average salaries. Nevertheless, the volume of new mortgages continues to be substantial, with billions of shekels issued monthly. This demand is partly fueled by buyers using family funds to complete their purchases. In August, for instance, 10.9 billion shekels in mortgages were issued, with a portion coming from first-time buyers relying on family support to meet the financing requirements.

While Israel has no gift tax, making cash transfers for property purchases tax-free, transferring property itself may involve different tax implications. Parents who provide financial backing reduce their own financial security for retirement by drawing from pension savings or mortgaging existing properties. With higher interest rates compared to the previous decade, both children's mortgage repayments and parents' additional credit costs are more significant. Careful planning, including a written family agreement and understanding regulatory limits, is advised to mitigate future conflicts and ensure parents can meet their commitments.