The Bank of Israel announces that the consumer reform to enhance the transparency of information to bank customers and to improve the competitive environment in the mortgage market will go into effect tomorrow. As part of the reform, a series of steps in the mortgage area, which are intended to make it easier for borrowers in the process of taking out a mortgage or recycling an existing mortgage, will go into effect. These steps will help the customer to submit a request to receive a mortgage proposal faster and more conveniently, to understand better the mortgage terms being offered and their impact on future payments, and to compare in a more informed and easy manner the various proposals offered by several banks.
Governor of the Bank of Israel Prof. Amir Yaron said, “This is a significant consumer reform, which indirectly helps all mortgage borrowers in Israel. The reform enables borrowers, for whom it is usually their greatest financial undertaking, to understand better the various mortgage proposals including the opportunities and risks inherent in each track. In particular, the reform enables a borrower to compare terms offered by several banks for a mortgage with identical terms. It thus improves the borrower’s negotiating power and contributes to enhancing the competition among mortgage providers. This step joins a long list of processes that we have promoted in recent years and will continue to promote, for the benefit of the households and small businesses, and for a switch to a world that is digital, accessible, and faster.”
Supervisor of Banks Mr. Yair Avidan said, “The steps we have promoted within the mortgages sphere will increase competition between the banks by simplifying the mortgage product and making it accessible via digital means and by any channel chosen by the customer. These steps will assist customers in the process of deciding on, and taking, a mortgage. They will assist with customers’ economic conduct, will make it easier for them to conduct a market survey before taking a mortgage, and will enhance their control over terms of the mortgage, including their ability to comply with their undertakings. This is an additional measure in the framework of steps being taken by the Bank of Israel to transfer the power to the customers and seeing them as the center. I urge customers within this framework to realize their rights, to carry out the comparison and examination in accordance with the tools available to them and to enhance the financial conduct activities of the household.”
In accordance with the reform, the banks are required to give the customer an approval in principle (mortgage proposal) in a uniform structure, on which 3 uniform mortgage loan compositions, defined by the Bank of Israel, and an additional mortgage loan composition adjusted to the customer’s needs and characteristics, will be presented. The goal of proposing the uniform compositions is to improve the customer’s ability to conduct a cost comparison among the bank’s various price proposals, and vis-à-vis the possible price proposals at other banks.
Among the variables that will be presented in the approval in principle are the forecast total interest, the total expected payment to be made until the end of the loan period, the first monthly payment amount, and the amount of the highest monthly payment expected by the forecast. These data take into account the expected monthly fees and payments throughout the loan period based on the forecasts for changes in the CPI and in market interest rates, updated to the date of the approval in principle. These forecasts are intended to illustrate future payments and interest rates. These forecasts are derived from the prices of government bonds and reflect the assessments of capital market participants. As these are forecasts derived from the capital market, in accordance with the economic reality at the time they are formulated, it is possible that the payments and interest rates that will be paid in actuality will be different.
All the banks base their information on the same forecasts, published by the Bank of Israel[1], so that the base of the comparison between various price proposals of the bank will be uniform.
In addition, within the framework of these steps, it was determined that bank customers will be able to submit a request for an approval in principle online and by phone, and to receive the approval in principle online. In addition, the time between the submission of the request for a loan and the receipt of an approval in principle was established, and was limited to 5 business days (in anomalous cases to 7 business days).
In addition, the Directive requires making information accessible to the customer on the bank’s website that will make it possible to examine the worthwhileness of the mortgage proposal and the execution of recycling the mortgage loan. In order to examine the worthwhileness of the mortgage proposal, the bank will put on its website, beginning from September 30, 2022, a simulation calculator that will make it possible to conduct simulations of various compositions of loans at various time ranges.
In order to make the reform accessible to the public, the Bank of Israel has formulated a series of consumer-related steps:
A designated site for the mortgage transparency reform, including all the information, public awareness videos, an explanatory booklet, questions and answers, dictionary of terms, and more.
A digital and radio campaign – including, among other things, public awareness videos, a digital booklet, and more
Conferences for the public – the bank will hold a series of conferences for the public on a digital platform over the coming months. In the coming weeks, the bank will hold professional explanatory conferences for mortgage consultants, social organizations, and other functions serving as sources of information for the mortgage-taking public.
A comprehensive explanatory booklet that includes training, making the reform accessible, and the process of taking or recycling a mortgage
Explanatory videos – explanations of the mortgage loan compositions, the required steps, and the structure of the new mortgage document.
LINK to the short video
LINK to the long video
(all the bank products are attached for your perusal and use. Credit: Bank of Israel.
For further information, see also the press release dated November 14, 2021 LINK.