Bank of Israel Issues Updated 2026 Mortgage and Real Estate Guidelines
The Bank of Israel has released updated mortgage guidelines for 2026, clarifying complex LTV calculations, foreign buyers, self-employed income verification, and purchasing group rules.
The Israeli real estate market operates under strict regulations and guidelines imposed by the Banking Supervision Department on the financial system, primarily the Proper Bank Management Directive known as "Restrictions on Housing Loans." To minimize friction and misinterpretations by the public and the banking system, the Banking Supervision Department periodically issues an updated binding Q&A document.
The document addresses critical questions concerning every homebuyer in Israel: from calculating the Loan-to-Value (LTV) ratio in complex transactions, to handling the income of self-employed individuals and limited liability companies, and strict rules surrounding purchasing groups and mortgage refinancing.
The Bank of Israel has released updated clarifications and key guidelines to regulate financial rules for 2026.
Calculating LTV in Complex Scenarios
When a borrower applies for a loan to purchase a single apartment but pledges another property as collateral (such as parents' home), the LTV ratio is calculated differently depending on which asset serves as the primary security. When the purchased property serves as collateral, LTV is calculated relative to it. Conversely, when an existing property is used as collateral to purchase another property, the LTV is calculated relative to the purchased property (meeting the limits of 50%, 70%, or 75%), but the credit must under no circumstances exceed 50% of the actually pledged property. Therefore, the bank is obligated to evaluate the value of the purchased property even if it is not a direct collateral.
Foreign residents purchasing their first apartment in Israel are not considered "single apartment" buyers. The terms "single apartment" and "alternative apartment" apply exclusively to Israeli citizens. Consequently, a purchase by a foreign resident is automatically classified as an "investment apartment," limiting the maximum LTV ratio to 50%.
Borrowers may receive equity assistance from a first-degree relative by mortgaging their property, but this third-party loan is classified as a "housing loan for any purpose," restricting its maximum LTV to 50% of the pledged asset. The value of the third-party property itself is irrelevant to calculating the LTV of the primary purchase transaction.
Income Verification and Monthly Payments
Self-employed individuals and foreign residents can prove compliance with the "payment-to-income ratio" when their income fluctuates by submitting signed annual tax assessment reports filed with the tax authority, or a signed certificate from a certified accountant or tax advisor if the report is not yet filed. For foreign residents, signed reports submitted to foreign tax authorities are accepted.
Income of a borrower who is a 100% owner of a limited company can be recognized, similar to self-employed individuals, based on the company's net profit subject to dividend withdrawal rights. Expected dividend taxes must be deducted, and a conservative safety factor is applied to the net amount determined by the bank. Actual dividend withdrawals will not be recognized as additional income in this case.
Future rental income can be recognized only when based on an expense-income principle and subject to four strict conditions: the borrower declares an intention to rent out the property, provides documentation of current housing or rent paid, presents a certified appraiser's evaluation of projected rent, and the bank applies a cautious safety factor. If the property is already rented, the original lease contract can be used without an appraiser.
Loan Refinancing and Modifications
When credit increases solely due to an "early repayment fee," refinancing is permitted without requiring a recalculation of the payment-to-income ratio.
In internal refinancing (with the original lending bank), there is no need to recalculate the payment-to-income ratio or LTV. In external refinancing (transferring to another bank), the new bank must recalculate current income and property values for risk and capital management, though refinancing is permitted even if deviations from original limits are discovered.
Purchasing Groups
While there is no closed list, specific indicators establish a "substantial connection" between different purchasing groups, requiring them to be treated as a single "borrower group." These include a significant proportion of common members across projects, shared external risks, and the professional proximity of a common organizer or identical professionals such as legal advisors, contractors, and engineers. Banks are required to examine each case individually.
