Bank of Israel Tightens Rules on Parental Mortgage Assistance

The Bank of Israel is restricting how parents can help their children finance home purchases by co-signing mortgages. Previously, when parents joined a mortgage as borrowers and managed the monthly payments, their full disposable income could be considered when assessing repayment ability. Under new guidance from the Bank of Israel, banks can now only count half of the disposable income of a relative who is not a property owner, even if they are making all the mortgage payments. This change can be decisive in whether a bank approves or denies a loan application.

The new regulation targets a practice known in the mortgage industry as "borrower inversion," where children are the property buyers but parents join the loan, sometimes as primary borrowers, due to their higher earning capacity. This method was often used because mortgage interest rates are typically lower than those for other types of loans, even those secured by a residence. The Bank of Israel's Supervision of Banks began this restriction in February 2026 as a draft, and it is now a mandatory clarification.

This measure is expected to particularly affect young couples who may not yet earn enough for the required mortgage amount, including recipients of subsidized housing programs where parents cannot be listed as property owners. It may also impact families building on inherited land or those seeking to construct homes on family property. The change follows another Bank of Israel update from October 1, which revised the calculation of the debt-to-income ratio (PTI). Banks must now consider total housing loan repayments from all sources, not just the new mortgage, and include loans from other financial institutions. While the official ceiling is 50% of disposable income, the effective limit is likely to be lower, around 35%-40%, due to regulatory capital requirements for higher PTI ratios.