Bank of Israel promotes a reform in the mortgage market - more transparency and competition

The Bank of Israel has announced a reform designed to increase information transparency and competition in the mortgage market. The new reform is expected to facilitate borrowers in three key aspects: transparency and the ability to compare, simplicity and the ability to understand and efficiency in carrying out the process. It is estimated that the reform is expected to take full effect towards the middle of 2022 and there may be further changes.
The Bank of Israel actually takes competition in the banking system one step further and requires the banking system to present uniform mortgage routes to be determined by the Bank of Israel, with the customer determining the duration of the monthly loan and payment period. That is, in the three uniform tracks the customer will be able to "play" with the duration of the loan to facilitate the monthly payment or burden himself more.
In addition, the banking system will have to respond to customers' mortgage applications within a few days while the current situation is that there is no obligation to respond to customers within a pre-determined period of time which makes it difficult for customers to make real-time comparisons between different mortgages.
As part of the reform, banks will be required to provide the customer with a certificate of principle in a uniform format, which will include, among other things, the projected total interest rate (uniformly calculated in all banks), the total projected payments for the entire mortgage period and the highest expected monthly payment. In addition, the time for granting the approval in principle will be shortened to a few days instead of two weeks or more today, and it will be possible to submit the application and receive the approval in principle online at all banks, in contrast to the current situation where many are forced to access the bank branch.
In addition, the Bank of Israel itself will offer, in addition to the mortgage basket offered by the Bank, three uniform baskets whose composition is determined by the Bank and are intended to make it easier for the mortgage taker to make a comparison between the banks' offers. At the same time, banks will also be required to make available a calculator for loan simulations, information on all types of existing loans and their details, and the presentation of information to examine the feasibility of carrying out a mortgage cycle.
The Governor of the Bank of Israel, Professor Amir Yaron: "We have decided to promote significant consumer reform, which will directly affect all mortgage borrowers in the State of Israel. A mortgage is the largest financial commitment in the lives of most households, but today mortgage borrowers have difficulty understanding and comparing offers without financial knowledge The series of measures we are promoting is designed to give customers more power and make it easier for them to make one of the most significant financial decisions for them wisely and even help the economic conduct of the household now and in the future. And for small businesses "
The Supervisor of Banks, Yair Avidan: "Buying an apartment is the most important economic transaction of a household. In order to simplify the process of obtaining a mortgage to finance the purchase and allow customers to contact the bank quickly, which will offer the best value proposition for them, we have taken a number of significant steps. The competition between banks will help customers in the decision-making process and its implementation. The public will make use of the tools we have at their disposal and make a comparison between the proposals of the various banks, which will lead to an improvement in the terms of the mortgage. "
According to the bank, "Following the reform, the customer will be able to better understand the mortgage terms offered to him and their implications for future payments, to more intelligently and easily compare the various offers given to him by several banks and apply for a mortgage offer more quickly and conveniently. The customers will thus improve the competitive environment in the market. "
The bank also claims that unlike in the world, where it is not customary to combine different interest rate tracks, mortgages in Israel are usually composed of a mix of several tracks, which of course allows flexibility in adapting the mortgage product to customers, but at the same time adds complexity.
The same complexity makes it difficult for borrowers to compare the offers of the various banks and it is even increasing in cases where the offers of the banks include different routes given for different periods. To this end, the proposed series of measures is intended to make it easier for borrowers to assess the significance of the linkages and expected changes and to help them better understand the risks inherent in the various routes.
The Governor of the Bank of Israel, Prof. Amir Yaron: "A mortgage is the largest financial commitment in the lives of most households, but today mortgage borrowers have difficulty understanding the offers and comparing them without deep financial knowledge. The series of steps we promote "Intelligent one of the most significant financial decisions for them and will even help the economic conduct of the household now and in the future."
The Supervisor of Banks, Yair Avidan: "Buying an apartment is the most important economic transaction of a household. These measures will encourage customers to conduct a market survey before receiving a mortgage, as it will be easier to compare the various offers, and they will increase customer control over mortgage terms. "Including their ability to meet their obligations. I invite the public to use the tools we have at their disposal and make a comparison between the offers of the various banks, which will lead to an improvement in the mortgage terms."