Non-Bank Mortgage Lenders Offer Luxury Trips to Advisors to Boost Sales Amid Market Slowdown

Mortgage advisors in Israel are being incentivized by non-bank lenders with lucrative rewards, including overseas vacations, to promote expensive mortgage loans. While advisors are prohibited from receiving commissions from banks, the non-bank mortgage sector, which accounts for about 3% of the mortgage market or roughly 13 to 20 billion shekels, actively competes for advisors by offering payments of 0.5% to 1% of the loan amount, cash bonuses of 5,000 to 10,000 shekels, and luxury trips abroad. Examples include trips to Las Vegas, Tanzania, Zanzibar, New York, and Ibiza, with advisors earning points toward these rewards by closing just 3 to 5 loans.

Advisors admit these perks create conflicts of interest, potentially leading them to favor certain lenders despite higher interest rates of 10% to 12% compared to 5% to 6% at banks. Non-bank lenders offer faster, more flexible loan approvals and serve clients unable to secure additional bank financing due to regulatory limits on monthly repayments or loan-to-value ratios. This trend is partly driven by buyers needing to complete payments on delayed real estate deals, pushing them toward costly non-bank credit to avoid hefty cancellation penalties.

The Bank of Israel recently introduced tighter regulations on housing loan repayments, limiting total debt repayments to 50% of disposable income and increasing risk weights for loans exceeding 40%, which may further push borrowers to non-bank lenders. Mortgage advisors warn that while non-bank loans offer flexibility, their higher costs and fees often outweigh penalties for contract cancellations.

The Capital Market Authority is currently reviewing public comments on draft regulations that would ban non-bank lenders from offering benefits to mortgage advisors, aiming to ensure advisors are compensated only by clients. Advocacy groups caution that current marketing practices may artificially inflate demand for expensive credit and pose systemic risks. Industry representatives emphasize that these competitive incentives are standard business practices and comply with existing laws. The mortgage advisors association urges swift legislative action to regulate the sector comprehensively.