The Bank of Israel published a response opposing the National Economic Council’s proposal to subsidize existing mortgage borrowers through a levy on commercial banks, arguing the measure lacks economic rationale and could damage Israel’s economy and international standing. It also says the proposal would discriminate among borrowers and between different types of borrowers, and would amount to retroactive intervention in existing contracts that does not align with accepted international standards. Based on information available to it, the Bank describes a subsidy calibrated to the real increase in mortgage repayments between 2022 and 2025 and the property’s purchase value, funded by a bank levy with an estimated total cost of around NIS 3 billion. The Bank disputes the proposal’s underlying assumption that borrower hardship has risen sharply, emphasizing payment-to-income (PTI) ratios rather than nominal repayments and citing a 2023 analysis showing PTI declines for cohorts borrowing in 2017–2020 and only small increases for 2021–2022 borrowers, with subsequent income growth and a 25 basis point policy rate cut suggesting the 2023 assessment overstates burden increases. It adds that between January 2022 and April 2025 average mortgage payments rose about NIS 960 while the average full-time salary rose about NIS 1,880, and that credit card spending grew similarly for households with mortgages (27%) and without (30%). Credit losses on mortgages are cited at 0.7%, and the Bank points to earlier measures adopted by banks, including June 2023 assistance principles, war-related payment deferrals without interest or fees, and an April 2025 plan under which banks will provide about NIS 3 billion of relief over two years. The Bank also highlights distributional and market-design concerns, including that borrowers who refinanced to reduce monthly payments could be excluded, and that taxing banks to fund retroactive mortgage subsidies is problematic, particularly given a described mechanism of taxing one-third of banks’ excess profits that could, in practice, use one bank’s profits to subsidize another bank’s customers. It notes the proposal has not been formally submitted to the Bank and has not been discussed with its professional staff.
Bank of Israel 2025-12-03
Bank of Israel opposes proposed NIS 3 billion subsidy for existing mortgage holders funded by a levy on commercial banks
The Bank of Israel opposes the National Economic Council's proposal to subsidize existing mortgage borrowers through a levy on commercial banks, citing a lack of economic rationale and potential harm to Israel's economy and international standing. The Bank argues the proposal discriminates among borrowers, involves retroactive contract intervention, and is based on flawed assumptions about borrower hardship, while highlighting concerns over distributional impacts and market design.