Recent changes to parental mortgage rules are creating challenges for buyers who rely on their parents’ income to qualify for a home loan. The Bank of Israel now limits how much of a parent’s income can count when they don’t own the property, which may affect families relying on this arrangement. Buyers who delay taking out a mortgage until a new home is ready could also find that the financing they expected is no longer available—or costs more—so it’s important to review mortgage plans early.
One of the things I’ve learned in nearly 20 years of arranging mortgages in Israel is that a bank being happy to lend you money today doesn’t mean it will lend you the same money in two years. Some buyers are now discovering this the hard way. The new parental mortgage rules from the Bank of Israel have made certain arrangements more difficult, particularly where parents help their children qualify. The problem also extends to people who bought two or three years ago but haven’t yet taken out their mortgages.
What the Bank of Israel Has Clarified
In Israel, parents often help their children buy a property. They contribute towards the deposit, and they also use their own income to help their children qualify for a mortgage. The Bank of Israel has now clarified that where a parent has no ownership in the property, the bank can recognise a maximum of 50% of that parent’s disposable income. This applies even if the parent signs as a borrower and undertakes to pay the entire mortgage. The clarification came into effect on 1 November 2026.
The reason this matters comes down to how banks size a loan. Bank of Israel regulations cap monthly repayments at 40% of disposable income, and most banks stay well below that ceiling, so the income a bank recognises effectively sets the loan limit. Take a parent with disposable income of NIS 40,000 a month. Only NIS 20,000 of that can now be counted, which reduces the theoretical maximum monthly repayment from NIS 16,000 to NIS 8,000. At around 4.5% over 25 years, that is roughly the difference between a NIS 2.8 million loan and a NIS 1.4 million one. Real approvals depend on many other factors, but under the parental mortgage rules, the same family income now supports a much smaller loan.
Borrower Reversal Is Now Far More Restricted
The change is particularly significant for an arrangement known as היפוך לווים (borrower reversal). Here, the children own the property, and the parents are the primary borrowers, while the children guarantee the loan with the asset rather than their income. It has suited families where the parents earn well, but the children don’t yet qualify on their own. Some parents also buy in their children’s names deliberately. An Israeli resident buying a first home can typically borrow up to 75% of the property’s value, compared with 50% for investors, and may pay far less purchase tax.
These arrangements are now much more restricted, and the alternatives cost more. Registering the parents as part-owners can expose their share to higher purchase tax if they already own a home, and it can affect the loan-to-value the bank is allowed to offer. Borrowing outside the standard residential mortgage framework can mean interest rates 1% to 1.5% higher. On a NIS 2 million mortgage over 25 years, an extra 1% alone adds approximately NIS 350,000 in repayments.
The Real Problem: Buyers Who Haven’t Taken Out Their Mortgages
This is the part that concerns me most. Imagine a young couple who bought an apartment from a developer three years ago. They confirmed that their parents could take out the mortgage on their behalf, and they signed the contract. Because the apartment wouldn’t be ready for three years, they waited before taking out the mortgage. Now the apartment is nearly ready, the final payment is due, and the arrangement they relied on is no longer available on the same terms.
Buying off-plan adds to the risk. Developer payments are usually linked to the construction cost index, so the final balance often exceeds the original budget. Handover dates also slip, which stretches the window in which bank policy can change. Most importantly, Israeli purchase contracts carry no mortgage contingency. If the financing falls through, the buyer still has to pay, and late payments to the developer typically incur interest and penalties.
My Advice: Don’t Wait Years to Take Out Your Mortgage
I’ve always advocated drawing down a small portion of your mortgage as early as reasonably possible, particularly when buying from a developer. This does come at a cost: interest starts accruing as soon as funds are released, although you only make repayments on the amount drawn down. For example, drawing down 5% of the loan would generally mean paying around 5% of the full monthly repayment, assuming the same rate and term. Every situation needs to be assessed individually, but bank policies change and, as we’re seeing now, entire financing arrangements can disappear.
An approval in principle (ishur ekroni) is useful, but it is valid only for a limited period and isn’t a promise that the bank will lend you the money years later. Once a mortgage has actually been funded, you’ve secured that financing on the agreed terms. You are no longer being reassessed under whatever rules apply when your keys are ready.
If you’ve bought a property but haven’t yet drawn down your mortgage, I’d strongly recommend reviewing your financing arrangements now, rather than waiting until the money is due. And if you’re about to buy, think carefully about when to take out your mortgage, not just which bank to use.
My takeaway is simple: don’t assume that because you can get a mortgage today, you’ll be able to get the same mortgage when your apartment is ready.
Aaron Krasner is a private mortgage consultant in Israel and is the owner of Anglo Mortgages. Aaron can be reached by email at [email protected].
