The Bank of Israel announced today (Monday) the promotion of consumer reform to increase customer transparency and improve the competitive environment in the mortgage market.
The measures are intended to facilitate borrowers in the process of taking out a mortgage in three aspects: transparency and the ability to compare, simplicity and the ability to understand and efficiency in carrying out the process.
As part of the measures, the banks will be required to provide the customer with a certificate of principle in a uniform format, in which, in addition to the mortgage basket offered by them, three uniform baskets whose composition is determined by the Bank of Israel will be chosen by the customer.
Each of the baskets will show: the projected total interest rate, the total forecast payments in the entire mortgage period and the highest monthly payment expected according to the forecasts.
In addition, the time for granting the approval in principle will be shortened to only a few days and it will be possible to submit the application and receive the approval online at all banks.
The Bank of Israel explains that following the reform, "the customer will be able to better understand the mortgage terms offered to him and their implications for future payments, compare wisely and more easily between the various offers given to him by several banks and apply for a mortgage offer more quickly and conveniently."
It should be noted that mortgages in Israel are divided between different tracks, including: unlinked fixed interest rate, linked fixed interest rate, unlinked variable interest rate, linked variable interest rate and prime;
When some of the tracks have different characteristics that differ in the anchor to which the mortgage is attached and the frequency with which the interest rate changes.
An international comparison shows that in most countries in the world, mortgages are divided into only two main tracks: a fixed interest rate and a variable interest rate.
It also shows that unlike in the world, where it is not customary to combine 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 to their complexity.
The high complexity of the mortgage market makes it difficult for borrowers to compare the offers of the various banks.
This complexity even increases in cases where the banks' proposals include different routes given for different periods.
The Governor of the Bank of Israel, Professor Amir Yaron, commented on the reform: "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 Supervisor of Banks, Yair Avidan, added: "We have taken a number of significant steps that will increase competition between banks and assist customers in the decision-making process and its implementation. These steps will encourage customers to conduct a market survey before obtaining a mortgage. "Customers' control over the terms of the mortgage, including their ability to meet their obligations."
