Israel's Mortgage Crisis: 70% of First-Time Buyers Take High-Risk Loans

The Bank of Israel's traditional rule of thumb suggested that mortgage repayments should not exceed 25% of a household's income. In recent years, banks recommended keeping it within 30%-33%. However, particularly since 2021 amid soaring housing prices, this ratio has frequently crossed 40%, placing borrowers in a high-risk category.

Growing Risks Amid Economic Shifts

While banks conduct underwriting to assess repayment capacity, modern labor market dynamics present new vulnerabilities. Frequent job changes, layoffs in the high-tech sector, and income drops during wartime mean that household income can fluctuate sharply. According to a study by the Alrov Institute assessing middle-income deciles (6th, 7th, and 8th) across 12 cities for a standard 4-room apartment with a 70% financing mortgage:

• In the second quarter, 70% of first-time homebuyers could not safely purchase a 4-room apartment without their monthly mortgage exceeding 30% of net income.

• In the 6th decile, mortgages consume 44% of net household income.

• In the 7th and 8th deciles, the figures stand at 39% and 35% respectively.

"The banks are allowing the public to take on dangerous risks and high loans. Some will not be able to service them and might even have to cancel their deals."

Declining Monthly Payments in Central Cities

On a positive note, compared to the same quarter last year, the average monthly mortgage repayment actually decreased from 11,416 NIS in the second quarter of 2025 to 10,864 NIS currently. Ramat Gan saw the most significant drop at 12.2%.

This trend does not necessarily mean housing prices dropped; rather, many buyers opted for smaller apartments or downsized to lower their monthly burdens. Significant drops were also recorded in Bnei Brak (9.1%), Bat Yam (7.9%), and Tel Aviv (7.4%), primarily concentrated in central cities where housing costs remain exceptionally high.