Phoenix Insurance Enters Non-Bank Mortgage Market, Prompting Regulatory Overhaul
The non-bank mortgage sector in Israel is expanding as institutional and non-bank entities deepen their involvement, with Phoenix Insurance recently entering the market through its subsidiary, Gamma. Phoenix, Israel's largest institutional insurer, joins established leasing companies like Shlomo Group, Carasso's Frisbee, and Maimon Direct, which have diversified into mortgage lending. Despite this growth, non-bank lenders still hold a minor share, about 3% of the mortgage market, compared to banks' 96%, but this represents a sixfold increase since 2015.
Phoenix's entry is notable due to its substantial equity of 12.8 billion shekels, far exceeding that of existing non-bank lenders like Maimon Direct, which has 1.45 billion shekels. However, Phoenix remains smaller than major banks such as Bank Hapoalim, with 65.5 billion shekels in equity. Legal experts suggest Phoenix could offer cheaper loans by using its own capital, potentially challenging banks and current non-bank players.
A key challenge for non-bank mortgages remains higher interest rates, as most non-bank lenders buy funds externally, increasing costs. However, interest rates have started to decline, partly due to Bank of Israel's rate cuts. Non-bank loans typically serve borrowers unable to secure favorable bank financing, often real estate investors. Industry professionals note that non-bank lenders are becoming more competitive, offering rates closer to banks and faster service.
Regulatory oversight of non-bank mortgage lending is currently limited, with fewer restrictions on loan-to-value ratios, income repayment ratios, and loan terms compared to banks. The State Comptroller's report highlighted the lack of transparency and consumer protections in this sector. The Capital Market Authority plans to introduce new regulations requiring lenders to provide clear loan details and summaries to borrowers before loan approval.
Concerns also exist about mortgage advisors receiving indirect benefits such as overseas trips and hotel stays from non-bank lenders, practices banned for bank-related advisors. The Capital Market Authority intends to prohibit such perks to reduce conflicts of interest and align non-bank advisory practices with banking standards. Public consultations on these regulations have concluded, with final rules expected by the Jewish holidays.
Parallel to regulatory efforts, Knesset members Vladimir Beliak and Yaakov Asher are advancing legislation to establish a Mortgage Advisors Council responsible for certification, registration, and disciplinary actions. The Mortgage Advisors Association supports this move, anticipating improved standards and reduced market oversaturation. The bill has passed its first reading but awaits further progress.
