Remarks by Bank of Israel Governor Dr. Amir Yaron at the Bank of Israel’s conference on the reform to increase transparency in the mortgage market
I am pleased and proud to speak with this audience of mortgage advisors at a special conference on the mortgage transparency reform that the Bank of Israel has initiated and enthusiastically advanced in recent months. With your permission, I would like to make a few general remarks about the reform and its importance, and on the main function that I see you, as mortgage advisors, fulfilling in putting the reform into action in the optimal way. I will not go into all the details, since you will learn more about each section of the reform as the day goes on.
The mortgage reform is a significant consumer reform, perhaps the most significant we have seen in recent years. As we all know, a mortgage is usually the largest financial liability that a household takes upon itself. In addition, in contrast to the situation in most developed economies, the mortgage structure in Israel is very highly complex. This makes it very difficult for borrowers to compare offers they receive from various lenders and to bargain over the terms of the loans, and creates a situation where the power is mostly held by the lenders.
We formulated the measures in the reform in consultation with a number of people, including world-renowned experts in behavioral economies, and with you—the mortgage advisors. These measures are intended to transfer power to the customers, and to help all mortgage borrowers in Israel better understand the various mortgage offers, the opportunities, and no less important the risks, that are involved in each mortgage track. The reform will make all of us more informed financial consumers.
In particular, the reform enables customers to compare the terms offered by a number of banks for mortgages with the same characteristics. It thereby also improves customers’ bargaining power. The simplification and accessibility of mortgages—mainly through digital means, which was very lacking in the digital world in which we live—will increase competition in the banking system, and will give the financial consumer increased strength.
In accordance with the reform, the banks are required to give customers an approval in principle in a uniform structure, which will present three uniform baskets defined by the Bank of Israel, and another basket that is adapted to the customer’s needs and characteristics at his request. The aim of presenting the uniform baskets is to improve the customer’s ability to compare costs between the bank’s various quotes and against potential quotes from other banks.
The variables that will be presented in the approval in principle include: the forecast overall interest, the total amount that the customer can expect to pay until the end of the loan period, the initial monthly payment, and the highest monthly payment expected based on the forecast.
These figures take into account the fees and monthly payments expected throughout the loan period based on the forecast of changes in the Consumer Price Index and in the interest rates in the economy, which are updated to the date the approval in principle is issued. These forecasts are intended to illustrate future payments and interest rates.
We made sure that all the banks would use the same forecasts, calculated on the basis of capital market data and published by the Bank of Israel, so that the basis for comparison between the banks’ various price quotes would be uniform.
In addition, as part of these measures, the banks’ customers will be able to submit a request for an approval in principle online or by telephone, and to receive the approval in principle online.
Furthermore, as part of the reform, we are requiring the banks to make information accessible to customers over the banks’ websites, which will help customers examine the feasibility of mortgage offers and of refinancing mortgage loans. In order to examine the feasibility of offers, each bank will provide a simulation calculator on its website, which will enable simulations for various mortgage mixes for various time ranges.
It will not be easy to evaluate this reform. We announced it in November of last year, and within a few months, after intense preparations on the part of the banking system and our own determinedness, we are launching it. It is clear that there will be birth pangs. We are here to listen, to hear what is missing, to identify the difficulties and improve on the fly. It was important to us to get the reform into the market quickly even if not everything was perfect, and not to delay in the matter.
As I have already noted, purchasing a home is the largest expense in the life of the average household, and mortgages will naturally be complex in any situation. This is where your critical role as mortgage advisors comes to play in the optimal implementation of the reform.
Through you, customers can actualize their rights, compare and examine in accordance with the tools that are available to them, choose the mortgage basket that best fits their needs and characteristics, and empower their financial conduct. The measures I mentioned will help you base your work on uniform data and clear forecasts without needing to calculate them on your own. Essentially, our requirements of the banks form a platform on which you will be able to provide your customers with a high-quality, clearer, and more accessible product.
In view of the importance of the reform, we have also prepared information materials that are accessible to the public. There is a special website, video clips, a comprehensive information booklet reviewing the mortgage process from beginning to end, and a FAQ, as well as conferences such as this one, and we are considering including calculators later on. I would like to take this opportunity to thank the Association of Mortgage Advisors, and other advisors, for your help in preparing the materials. This discussion is important, and improves the final products. You are obviously invited to use these explanatory materials and share them with your customers.
The mortgage reform is another step being taken by the Bank of Israel to advance competition in the financial markets by transferring power to the customer, putting the customer at the center, and improving his bargaining power. It joins the open banking reform, one-click transfer between banks, the establishment of a digital bank, and more.Again, I would like to thank you for your participation in this conference, for your cooperation in building the reform, and hopefully in its implementation