Household Debt in Israel

The ratio of household debt to GDP in Israel is considered to be low relative to other developed countries and particularly relative to the threshold established by the IMF (65 percent) as an indicator of economic crises. Nonetheless, this ratio has been characterized by an upward trend during the last decade as the result of low interest rates, the rise in housing prices, the increase in private consumption and growth in the supply of credit as a result of the entry of new financial institutions into the credit market.

The current research examines the level of debt among households in Israel, according to income decile, and assesses the potential risk implicit in the trends during the last decade. The findings provide grounds for concern regarding the financial stability of households in the lowest decile. Although the proportion of debtors in the lowest decile is lower than in the others, the level of debt among those households far exceeds their annual income, casting doubt on their repayment ability. Moreover, the lowest decile has the lowest proportion of debtors of working age, along with the highest proportion of debtors above the age of 54. In other words, it appears that they do not take out a loan in order to smooth consumption over their lifetime, as do the upper deciles.

An examination of the debt of the lowest decile according to population group shows that the highest median ratio of debt to annual income is to be found among the ultra-Orthodox. Among the Arab Israeli population, most of the loans are for consumption and non-housing purposes, a result of the difficulty they encounter in obtaining a mortgage.