Comptroller warns Israel’s mortgage market at high risk

The exposure of mortgage borrowers and financial institutions in Israel to a crisis similar to the subprime crisis in the US of 2008 has risen considerably in the past decade, but the Banking Supervision Department in the Bank of Israel has not changed procedures in the light of the situation, the State Comptroller warns in a report on the mortgage market. According to the report, between 2015 and 2025, the aggregate debt of households on housing loans more than doubled, and the proportion of loans at high risk rose between 2022 and 2025 from 20% to almost a third.

The report finds that between 2015 and 2025 the balance of mortgage debt rose from NIS 300 billion to NIS 630 billion. This stemmed from the steep rise in home prices in this period, amounting to some 60%. This compelled homebuyers to take larger and larger mortgages amounting to an increasing proportion of the value of the property, with consequently rising monthly repayments.

The Bank of Israel responded sharply to these claims, saying that the analysis was methodologically wrong.

Proportion of loans at risk

To what extent have increasingly burdensome mortgages become riskier for borrowers, and also for the lending banks? The State Comptroller defines mortgages at risk as those amounting to 60-75% of the value of the homes purchased with them (the loan-to-value metric, or LTV) and on which the monthly repayments amount to 30-40% of the monthly income of the borrowing household.

It turns out that between 2022 and 2025 the proportion of loans at risk rose from 20% to 31%.

This trend signals higher risk for borrowers, but, according to the State Comptroller “Despite the rise in the proportion of loans at high risk, the Banking Supervision Department did not examine the need for setting special risk weightings for loans at high risk given at high LTV levels and high proportions of income.” Only one directive was issued on this matter, in 2014, and it has not been updated since.

“The rise in mortgages increases borrowers’ assets and their incomes, but also increases their exposure to various financial risks that are liable to damage the stability of the financial system as happened in the subprime crisis,” the State Comptroller writes. “For households, the rise in the amount of mortgages is liable to make them unable to meet monthly repayments, and to cause a serious systemic failure in the financial system. There is therefore high importance for effective supervision by the bodies that regulate the mortgage market with the aim of maintaining the stability of the financial system and ensuring fair and optimal service to the public.”

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The State Comptroller also comments on special financial offers by real estate developers intended to promote sales at early stages of residential real estate projects, particularly at times of low demand. Such promotions mainly consist of deferral of payments until the handover, and loans subsidized by the contractors.

“The Banking Supervision Department does not oblige the banks to limit sales by contractors with substantial deferral of payments to the handover date. Because of that, although the practice is to include in agreements between banks and contractors in projects financed by the banks a condition that the contractors will sell homes with payments spread on a linear model in accordance with progress on construction, in fact some of the banks do not restrict contractors in respect of sales with substantial deferral of payments,” the State Comptroller writes. This he says causes higher risk for buyers and contractors, and for the banking system.

The State Comptroller is also dissatisfied with the efforts of the Banking Supervision Department to boost transparency and competition in the mortgage market, saying that Bank of Israel figures show that 67% of mortgage borrowers in 2024 received offers from only one bank.

In general, the State Comptroller recommends that the Banking Supervision Department should toughen restrictions on mortgages and examine their impact on the stability of the banks and fairness to borrowers.

The Bank of Israel has responded sharply to the State Comptroller’s report. “The mortgage market is too important to be discussed in a report that is unprofessional and strewn with errors and contradictions,” the central bank states. As an example, the Bank of Israel cites the State Comptroller’s finding that regulatory measures failed and that the total of credit given with subsidies by contractors jumped 18.5 times from NIS 453 million in December 2023 to NIS 8.4 billion in August 2025.

“In fact,” the Bank of Israel’s response states, “this is a methodologically erroneous analysis that compares a monthly figure with a cumulative figure. Besides that, the finding ignores the range of steps taken, among them prior identification of risks, regular monitoring, notifications to the banking system, and the formulation of a graduated plan of measures that signaled to the market, allowed for learning and measurement, and prevented sharp shocks.

“Presentation of these measures as a failure indicates lack of understanding of how regulation actually works, and is even liable to lead to mistaken perceptions of the policy required and to damage to the economy.”

On extent of mortgages at risk, the Bank of Israel’s response states, “The Comptroller writes that the regulator does not have critical data on risk, but he is invited to visit the Bank of Israel website where he will find these data.”

The Bank of Israel concludes by saying, “The Bank of Israel and the Banking Supervision Department will continue to act in a professional, balanced, and responsible manner to maintain the stability and fairness of the banking system and in particular to monitor routinely and in depth developments in the mortgage market and to take steps as necessary.”

Published by Globes, Israel business news – en.globes.co.il – on June 24, 2026.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2026.