Fearing an increased level of borrowing risk for buyers of unfinished new homes, Israel’s central bank said Sunday it would impose new restrictions on financing packages offered by developers.

The new directive by the Bank of Israel’s Banking Supervision Department will restrict contractors’ abilities to offer deferred payments and balloon loans through the end of 2026, it said.

Shortly after Hamas launched its war with Israel on October 7, 2023, contractors began offering these riskier types of loans to customers, who were more averse to buying homes due to the uncertainty of the situation. However, the central bank said, the trend has intensified in recent months, posing increased risk for buyers and developers and possibly even the banking system.

Such arrangements are now used in 50 percent of all new housing purchases, compared to 20% before the war, the Bank of Israel said in February. These types of loans are risky because they........

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