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

According to recent data from the Bank of Israel, 47% of mortgages in Israel 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, reflecting the impact of rising home prices and expensive credit on Israeli borrowers. 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, approaching the 30-year limit set 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 changes have not translated into financial relief for buyers. This is partly due to a lag effect from previously signed 20/80 developer deals finalized during peak price surges, as well as the cumulative price increases over recent years. The slight interest rate reduction has limited impact on the burden of a 1.1 million shekel loan, forcing households to extend repayment periods.

Mortgage refinancing surged to a record 25 billion shekels in the first half of 2026, a 25% increase from the previous year, mostly through internal refinancing within the same banks. External refinancing remains limited at 4.6 billion shekels, indicating low competition among lenders. Meanwhile, the share of subsidized balloon loans from developers has declined from 6.1% in Q2 2025 to 5% in Q2 2026, following regulatory caps imposed by the Bank of Israel.

Government interventions have been limited to minor measures, such as banning banks from contract clauses preventing price reductions by developers, which the Bank of Israel views as unlikely to affect the market. A proposed retroactive compensation law for mortgage borrowers was also dropped. Mortgage advisors warn that financing levels are unlikely to return to pre-interest rate hike norms, and the housing market is expected to remain under pressure until at least 2027 unless interest rates fall further.

Nofar Yaakov, chair of the Mortgage Advisors Association, notes a market transition from waiting to adapting to the new interest rate and price environment, with a growing rental market and increased use of prime-linked loans reflecting borrower expectations of future rate cuts.