Bank of Israel Clarifies Rules on Parental Mortgage Assistance
Translated & summarized from Ice by baba
The Bank of Israel has clarified rules on parental mortgage assistance, stating parents cannot fully cover payments for children's mortgages unless they are also listed as property owners. This change impacts young couples, particularly in the Haredi community, who relied on parental co-signing. Banks will now only consider half of a parent's disposable income if they pay the full mortgage but are not owners, potentially preventing loan approvals.
The story in 5 lines · by baba
- Bank of Israel clarified rules on parental mortgage co-signing and payments.
- Parents paying full mortgage for children are now only credited with half their income.
- This change affects young couples, especially in the Haredi community.
- Parents must be listed as property owners for full income consideration.
- The move is part of broader efforts to limit risky mortgage lending.
The Bank of Israel has issued a clarification regarding parental assistance for mortgage applications, stating that parents can no longer effectively co-sign and cover the entire monthly payment for their children's mortgages if they are not listed as owners of the property. Previously, young couples often relied on their parents to be listed as "guarantors" on mortgage documents, which helped them secure loans, especially when lacking sufficient down payments. This practice was particularly common in the Haredi (ultra-Orthodox) community, where parents would often take on a significant portion or even the entirety of the mortgage payments.
Under the new clarification, if a parent joins a mortgage application and pays 100% of the monthly installments, the bank can only consider half of the parent's disposable income. However, if the parent is also registered as an owner of the apartment, the situation is different. The Bank of Israel's stance means that if children are the sole owners, this method of parental support for mortgage approval will change significantly, potentially ending the practice of parents gifting or fully financing apartments for their children.
For example, if a young couple wants to buy an apartment but has no income, and their parent has a disposable income of NIS 15,000, the parent could previously cover the full NIS 10,000 monthly mortgage payment. Now, with the new rule, the bank would only consider NIS 7,500 of the parent's income, meaning the loan would not be approved. This clarification is part of broader efforts by the Bank of Israel to limit risky mortgage lending, which began earlier in the year with new regulations requiring banks to hold higher capital reserves and limiting the number of mortgages offered under financing promotions.
The Bank of Israel stated that this is a clarification of existing regulations, published periodically by the banking supervision department.
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