New Bank of Israel Mortgage Rules Set to Tighten Credit Conditions
New Bank of Israel mortgage regulations effective October 1 will tighten PTI calculations for all-purpose loans, sparking industry warnings of pushed non-bank borrowing.
Starting October 1, new regulations by the Bank of Israel in the mortgage market will take effect, aiming to tighten supervision over household repayment capacities. At the center is a significant change in how banks calculate the Payment-to-Income (PTI) ratio when granting all-purpose loans secured by existing property. The move has drawn criticism within the industry due to concerns that it will push borrowers into the expensive non-banking sector. Calcalist sorts out the changes coming into effect next month.
What is the Payment-to-Income (PTI) Limit?
The Payment-to-Income (PTI) ratio is a figure that determines what percentage of a borrower's net income can be allocated to mortgage repayment. According to Bank of Israel directives, the absolute permitted ceiling is a PTI ratio of 50% of income. However, in practice, the more significant threshold is 40%. When a borrower's PTI ratio crosses the 40% threshold (falling between 40% and 50%), the bank is penalized by the Bank of Israel, which requires stringent capital pooling (a 100% capital allocation against the loan).
This requirement significantly increases the cost of granting the loan for the bank, which passes the costs onto the borrower in the form of exceptionally high interest rates, or simply refuses to approve the transaction. The purpose of the limit is to prevent over-leveraging, ensure that the borrower has enough money left for current living expenses even under scenarios of price increases in the economy, and protect the stability of the banking system from borrower collapse.
What is the Main Change Taking Effect?
The Bank of Israel is tightening the method for assessing a customer's repayment capacity. Until now, when a borrower requested an additional loan secured by their home (an all-purpose loan), the bank assessed repayment capacity solely from the "disposable income" remaining after paying the existing mortgage. From now on, the bank will be required to sum up all monthly payments on the property—the old mortgage and the new loan—and calculate the PTI ratio of both together out of the total original net income.
What Are All-Purpose Loans and Why Do People Take Them?
An all-purpose loan is a tool that allows property owners to obtain relatively cheap credit from the bank against the collateral of their apartment (i.e., increasing the mortgage). These loans are used for purposes other than purchasing the apartment itself—ranging from financing renovations, helping children buy an apartment, and up to the most common purpose: debt consolidation.
Many households accumulate expensive debts (such as bank overdrafts, or consumer loans for cars and the like at double-digit interest rates) and use an all-purpose loan to consolidate and spread them out long-term under mortgage interest rates, thereby significantly reducing their monthly repayment.
Can We Have an Example?
Take, for example, a family with a net monthly income of 20,000 NIS, currently paying a mortgage of 6,000 NIS per month, and now requesting an additional loan for home renovation or debt consolidation with a repayment of 4,500 NIS.
Under the old system, the bank deducted the existing mortgage from the income (20,000 minus 6,000) and calculated the PTI ratio of the new loan out of the remaining 14,000 NIS. An amount of 4,500 NIS out of 14,000 NIS constituted a normal PTI ratio of about 32%, and the loan was usually approved.
According to the new calculation (effective October 1), the bank will sum up the existing mortgage (6,000) and the requested loan (4,500), and find that total repayments stand at 10,500 NIS. This amount constitutes 52.5% of the family's total original income (20,000). Since a breach of the permitted 50% threshold occurs, the loan will be rejected.
Why Is the Bank of Israel Doing This?
The official goal of the regulator is to prevent a situation where households take on a "mountain of debt" that makes it difficult for them to meet commitments. The Bank of Israel seeks to ensure that even if the economic situation changes or interest rates rise, borrowers will still have enough disposable cash for living at the end of the month, and to protect banks from over-leveraged borrowers.
What Is the Average PTI Ratio Today?
Data from the Bank of Israel shows that as of August 2026, the average PTI ratio in new all-purpose loans secured by property, whose volume stands at about half a billion NIS per month, was about 24% (out of disposable income). The average PTI ratio on regular mortgages stands at 29.2%.
This means that once banks are required to sum the payments together, the average borrower requesting the same loan will reach a combined PTI ratio of over 40%. Consequently, many will not be able to obtain the full amount they requested through the bank.
They will have to choose between giving up the loan or turning to the non-banking sector to complete the missing amount at more expensive costs. In the latter scenario, the Bank of Israel's move does not stop the loan acquisition, but rather shifts the risk from the banking system to the non-banking system.
Criticism and Industry Response
Mortgage industry professionals warn that the sweeping directive and lack of discretion given to banks could achieve the opposite result and actually harm borrowers.
"The Bank of Israel tries to bless and ends up cursing. A person who wants more credit through property collateral usually needs to close a bank overdraft at double-digit interest rates. Instead of allowing cheap bank credit, they are left with a long and very expensive credit burden outside the banking system," notes Liran Sela, CEO and founder of Sela Investments and Finance.
The central criticism in the industry is that this is a "guillotine directive" that prevents logical underwriting.
"If I, as a bank, see that a customer is paying their mortgage regularly, and additionally repaying another 8,000 NIS a month on outside loans, I know I have the option to load the debt onto the house and lower their overall monthly repayment to 4,000 NIS," explains Sela. "But the Bank of Israel forbids banks from doing this. If the debt goes toward closing another expensive debt, and the bank can control that the money goes directly there—exercise discretion as a banking institution. Do not block everyone in a fraction of a second. Ultimately, a person who collapses under non-banking debt will eventually return to the doorstep of the banks."
