Nearly Half of Israeli Mortgages at High Risk as Borrowers Face Rising Costs and Longer Terms

According to recent data from the Bank of Israel, 47% of mortgages in Israel now have a loan-to-value ratio exceeding 60%, with monthly repayments consuming over 30% of household disposable income. This means nearly every second mortgage is considered high risk due to rising housing prices and expensive credit. The average mortgage amount reached 1.1 million shekels in June 2026, up by approximately 300,000 shekels since early 2021, while the average repayment period has hit a record 27 years, nearing the 30-year limit imposed by the Bank of Israel.

Despite a slight drop in interest rates by half a percentage point and a modest 2% decline in housing prices over the past year, these improvements have not translated into financial relief for homebuyers. This is partly due to a lag effect from previous high-price transactions and the cumulative price increases over recent years. Borrowers are stretching repayment periods to manage monthly payments, and refinancing activity surged to a record 25 billion shekels in the first half of 2026, a 25% increase from the previous year. However, most refinancing occurs within the same bank, reflecting limited competition in the mortgage market.

The government faces structural challenges, including labor shortages since the Iron Swords war and weak enforcement against extortion in the construction sector. Current government interventions are limited to minor measures, such as banning banks from including clauses that prevent price reductions in contracts with developers. A more significant proposal for retroactive compensation to buyers with increased mortgage costs was ultimately shelved.

Mortgage advisors note a recent slowdown in subsidized balloon loans from developers, partly due to new Bank of Israel restrictions limiting such loans to 10% of total mortgages. This may help moderate official price declines. Meanwhile, loans secured by existing property for any purpose have decreased, possibly indicating a shift of borrowers to non-bank lenders rather than reduced demand. The mortgage market recorded its highest half-year volume since 2022, totaling 57.1 billion shekels in early 2026.

Experts highlight a tension between the fading impact of old financing deals and renewed buyer interest driven by lower interest rates. The mortgage market is expected to weaken by 2027 unless further rate cuts stimulate demand. Additionally, the rental market is strengthening, which could influence buyer behavior. An increase in prime-linked mortgage tracks to 21% in June 2026 from 10% last year suggests borrowers anticipate future rate reductions.