Bank of Israel moves to restrict “any purpose” mortgage loans

The Bank of Israel plans to step up pressure on the banks, with the aim of limiting the leverage that their customers take upon themselves. “Globes” has learned that the Bank of Israel recently circulated a new draft regulation among the banks for their comments, and that it will shortly be released for public comment as well. The draft contains tighter restrictions on mortgage loans given “for any purpose.”

The loans in question are classified by the banks as loans “not for the purposes of dwelling, secured on a dwelling.” The Bank of Israel intends to restrict the banks in the calculation of the maximum permitted monthly repayment.

The draft regulation changes the way of calculating the monthly repayment as a proportion of the household’s total disposable income. Under the new proposal, the total of repayments on mortgage loans – whether to buy, renovate, or for any purpose – will not exceed 40% of disposable income. It would appear that the regulation has been drafted in view of the substantial slowdown in home sales in the past year.

According to Bank of Israel figures, the total of any-purpose loans secured on a home given by the banks between January and September 2025 was NIS 5.5 billion, much less than the total of regular mortgage loans in the same period, which was NIS 79 billion. The interest rates on these loans are higher than on a regular mortgage loan – 5.5% on average on index-linked loans and 7% on non-linked loans – but much lower than the rates on unsecured any-purpose loans, which can reach double figures.

Under the new draft regulation, a person with monthly disposable income of NIS 20,000 will be able to take mortgage loans, including any-purpose loans, on which the aggregate monthly repayment is up to NIS 8,000 monthly. Currently, assuming repayments on existing loans of NIS 8,000, the NIS 12,000 balance of the income can be used as a basis for calculating additional loans, but the new regulation will not allow this.

At the Israel Mortgage Advisors Association the assessment is that the change stems from the fact that the rate of arrears on any-purpose loans is double that on regular mortgage loans: 1.2%, versus just 0.6%. But it may be that the Bank of Israel has identified growing pressure from the public trying to obtain credit as cheaply as possible, using a home as collateral, because of the high interest rate environment.

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“Mortgage loans for any purpose are loans that can be taken against an existing home for various needs,” a market source says. “The Bank of Israel’s measure is not entirely clear, but it could be a matter of being prepared for a certain decline in the value of homes in the future. If the Bank of Israel believes that there could be a fall in asset values in the future, that means a possible fall in the value of the collateral provided against the loans. Banking logic says that if the leverage in the system is, say, 60%, it could be that in practice in a year’s time it will climb to 70% because the value of the assets has fallen. So the Bank of Israel is acting in advance to guard against such an eventuality.”

Relaxation for subsidized housing winners

Not all is sticks, however; there are carrots as well. People who win government lotteries to buy homes at below market price can take mortgage loans amounting to 75% of the full value of the home and not of the price they actually pay. Up to now, this benefit was restricted to homes priced up to NIS 1.8 million. The draft regulation raises the ceiling to NIS 2.1 million.

A further relaxation contained in the draft is the extension of the maximum permitted period of a mortgage loan beyond the current thirty years. In cases in which a borrower has requested a deferral of repayments, for example because of the Swords of Iron war, repayments of the balance of the loan can be rescheduled such that the last payment will be made after thirty years have passed from the date the loan was granted.

Published by Globes, Israel business news – en.globes.co.il – on October 28, 2025.

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