Cabinet to discuss mortgage subsidies

The cabinet will today discuss the proposal by National Economic Council chairman Prof. Avi Simhon for the government to subsidize mortgages, which have become more expensive in recent years due to interest rate hikes. The proposal is fiercely opposed by officials at the Ministry of Finance and in the Bank of Israel.

The Bank of Israel has published an official paper on the subject saying, “Even after a thorough study, it is difficult to identify the economic logic of the proposal.” The paper added, “Such a proposal does not exist in the economies of third-world countries either. However, it is very easy to point out the potential damage to the Israeli economy and its image as a developed economy.”

The Bank of Israel noted that in recent years there has been an increase in the average monthly repayment of new mortgages, resulting from both the increase in housing prices and changes in the macroeconomic environment. “The increase in monthly repayments was more significant among the upper deciles and among mortgage holders in 2021-2022, a period in which there was a double-digit price increase in these apartments,” the Bank of Israel said.

“Globes” has learned that the proposal was added to the agenda of this morning’s government meeting at the last minute, and that the agenda distributed yesterday did not mention it. This may be due to legal and professional objections to the proposal.

In addition to the Bank of Israel’s objection, the legal opinion of Deputy Legal Advisor to the Prime Minister Orly Fishman Oren was also attached to the proposal. She says, “The positions of the professional elements in the Ministry of Finance and the Bank of Israel indicate that there is a deep professional disagreement regarding the framework that justifies the provision of assistance. Among other things, while the draft law, which is based on the professional position of the National Economic Council, justifies the need for a grant by harming the disposable income of the target population due to a significant increase in the monthly repayment, the professional echelon in the Ministry of Finance and the Bank of Israel believe that assessing the burden while focusing only on the amount of the monthly repayment, without weighing the growth in income, is professionally incorrect.”

The opinion added, “The absence of a well-founded and agreed-upon factual framework on the degree of harm to the target population also undermines the justification for its preference over other groups that were also affected by the interest rate rises. This preference is liable to turn the assistance into an arbitrarily granted benefit that raises significant difficulties in terms of equality.”

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It was also stressed that the draft law lacks detailed reference to enforcement and control mechanisms, both in relation to the lending entities and in relation to the target population that will receive the subsidy, and no budgetary source was presented.

Ministry of Finance budget commissioner Maharan Frozenfar also expressed opposition to the proposal. He wrote, “Just yesterday, the Knesset approved on third reading the 2026 budget bill, which does not include a source for financing the bill. As is known, this is a complex budget that was updated during the war, which includes cuts of billions of shekels to meet the needs of the war and the economy during this period… At this stage, it is not right to further burden the public.”

What will it look like?

The full details of the proposal are not yet clear, but in a legal memorandum on the subject published in January, the outline was as follows: A monthly grant for single-family homeowners who took out a mortgage before the end of 2022, before the high-interest environment began. Eligibility is limited to those who bought a home that does not exceed twice the average apartment price, which in 2022 was about NIS 2.2 million. The amount of the grant will be derived from two parameters: the increase in the actual monthly repayment, and the value of the apartment at the time of purchase relative to the average price.

According to this formula, anyone who purchased an apartment at or below the average price will be entitled to 75% of the real increase in the monthly repayment. Anyone who purchased an apartment at a higher price will receive proportionally reduced compensation. For example, someone whose monthly payment increased by NIS 1,600 and who purchased an apartment at an average price will receive about NIS 1,200 per month.

Another step contrary to the position of officials

This is another step by the government for extraordinary public spending contrary to the position of Ministry of Finance officials and the Bank of Israel. Only yesterday did the government approve the state budget with a fiscal deficit of 4.9% of GDP, which includes NIS 5 billion in coalition funds and tax benefits provided as part of a budget passed in an election year.

Hours after the budget was passed, the Ministry of Finance revised the GDP growth forecast downwards,, which according to the Bank of Israel, will increase the deficit to 5.3% and to an unusually high debt-to-GDP ratio of 70.5%. This is contrary to the government’s promises to investors that Israel plans lowering the debt-to-GDP ratio this year.

In the final budget debate, the government even increased the transfer of NIS 800 million from the coalition funds for haredi education in a move that prevented the need for legal approvals.

How much will it cost us?

There is also disagreement about the budgetary cost of the mortgage subsidies. While the budget commissioner estimates the cost at NIS 7 billion shekels over 5 years and NIS 2 billion for 2026 alone, the Bank of Israel estimates the cost at NIS 10 billion.

Published by Globes, Israel business news – en.globes.co.il – on March 31, 2026.

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