Smotrich seen opposing Netanyahu’s mortgage subsidy plan

Sources in the Ministry of Finance estimate that Minister of Finance Bezalel Smotrich will oppose the prime minister’s proposal for subsidizing mortgages, although he refuses to say anything on the subject. The proposal was due to be discussed yesterday by the ministerial legislation committee, but the discussion was postponed at the last minute. The assessment in the government is that the postponement was because the committee did not have the authority to approve the measure, which it is estimated will cost NIS 5.5-10 billion over five years, with no budgetary source.

The proposal consists of a mechanism for providing monthly grants to borrowers who took loans before the end of 2022 for the purpose of purchasing a single home. Entitlement will be limited to homes the value of which when they were purchased did not exceed double the price of an average apartment at the time, and to cases in which the loan has not yet been fully repaid. The rationale behind the plan, which is intended to run for five years, is to compensate people for the sharp rise in monthly mortgage repayments because of the rise in interest rates.

The size of the grant will be determined on the basis of the difference between the initial monthly repayment and the current repayment. The grant will be index-linked, and will cover up to 75% of the rise in the repayment. The actual proportion will depend on the value of the home at the time that the loan was taken in relation to the average apartment price at that time.

Accordingly, maximum aid will be given to borrowers who bought an apartment for less than or the same as the the price of an average apartment. For higher-priced homes, the amount of aid will be reduced in linear fashion until it becomes zero for a home that cost double the average market price.

“Unprecedented intervention in the market”

All the professionals in the government oppose the plan. The chief economist in the Ministry of Finance, Shmuel Abramzon, wrote to the ministerial committee this week that the plan would be liable to harm the government’s credibility on the economy and to lead to a rise in Israel’s risk premium and to more costly government debt, and even weigh on the cost of debt in the private sector. Abramzon stressed that the move had come a short time after approval of the state budget, in which the fiscal deficit target had already been raised because of the war.

“Breach of the budget framework or diversion of sources at this time for the purposes of a subsidy that does not contribute to the war effort or to the stability of the economy and its growth, for a distinct group, will represent a blow to Israel’s economic credibility,” Abramzon warned. “This is at a time when the economy is crying out for a credible and unambivalent message of fiscal responsibility.”

The chief economist also warned that the move was contrary to the effort to reduce home prices, as the subsidy for monthly loan repayments would diminish the incentive to sell homes. He said that the plan would cause significant damage to the mortgage market. “Retroactive government intervention in the outcome of private loan agreements is an unprecedented step,” he wrote, adding that this would be liable to lead households to become over-leveraged.

The chief economist thus seconds the stance of the Bank of Israel, which is that there is no economic justification for the benefit since it is intended for people who own a property and are economically stronger than those who cannot afford to buy a home even with external financial aid.

Abramzon also argued that the proposal represented egregious interference in the Bank of Israel’s interest rate policy. “Taking a step like this is liable to damage the reputation of the central bank as an independent body and thus worsen the perception of risk of the State of Israel and of Israeli companies.”

As mentioned, unlike the officials in his ministry, Minister of Finance Smotrich has so far refrained from publicly expressing criticism of the plan, but he is expected to oppose it.

Published by Globes, Israel business news – en.globes.co.il – on May 11, 2026.

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