Israeli Mortgage Market Heats Up Amid Rising Risks and Shifting Borrower Behavior

Despite a stagnant housing market, Israel's mortgage sector is experiencing significant growth. In June 2026, mortgage volumes surged by 24% year-over-year to approximately 11 billion shekels, marking one of the highest monthly totals in recent years. The first half of 2026 saw mortgage lending reach 57.1 billion shekels, the strongest since 2022, with increases of 14% compared to 2025, 48% over 2024, and 56% relative to 2023. However, this remains 17% below the record first half of 2022, when 69 billion shekels were borrowed.

The summer months of July and August traditionally show heightened mortgage activity, suggesting a potentially robust season ahead. Yet, analysts caution that the mortgage market's resilience may be temporary due to two main factors. First, the housing market's recent slowdown, with monthly home sales dropping sharply in April 2026, is expected to eventually impact mortgage demand. Second, the mortgage market itself has become riskier, with about 15% of loans now balloon loans, where principal and/or interest payments are deferred or subsidized by developers, compared to less than 6% in 2022. Additionally, nearly half of borrowers in early 2026 are stretching their finances, with monthly repayments exceeding 30% of disposable income and loan-to-value ratios above 60%.

This increased leverage and reliance on short-term developer subsidies create a fragile mortgage portfolio vulnerable to interest rate hikes. The average loan term is also compressed, with many borrowers nearing the regulatory maximum of 30 years. Meanwhile, borrowers continue to move away from inflation-linked mortgage tracks, which accounted for only 13% of new loans in June 2026, down from 30% a year earlier, due to inflation concerns and rising interest rates. Instead, there is renewed interest in prime-linked loans, which doubled their share to 18% in June 2026 amid recent rate cuts.

Consumer behavior reflects caution, favoring fixed or variable-rate loans that offer more predictable payments over the long term. The first half of 2026 also saw a surprising decline in all-purpose loans, which dropped to 6.1% of total mortgages, down from 7.4% in the previous year. This trend may signal easing financial pressure on households, helped by regulatory changes allowing higher loan-to-value ratios for all-purpose loans secured by property. Overall, while headline mortgage volumes suggest a heating market, underlying vulnerabilities and shifting borrower preferences point to a more complex and risk-laden landscape ahead.