According to the banks’ reports, the profits of the banking system continue to soar and break records. Apparently, the banks have an interest in continuing to sell as many mortgages as possible. So how can it be that quite a few people hear the word “no” from the bank teller after applying for a mortgage? This time we explain the meaning of refusing a mortgage. Why is this happening, is there really nothing to be done or is it possible to find a way to buy a house, despite everything.
The Bank of Israel prefers banking conservatism
Towards the end of 2022 and before the reports are published, there are already estimates regarding the profitability of all banks in Israel for this year. Against the backdrop of inflation, the increase in the index and the increase in interest rates, the profitability of the banking system is expected to cross the NIS 20 billion mark. While there is public criticism of copycat profits and the relatively low interest rates that banks pay on deposits, the banks continue to make big profits. So how does this go with the fact that sometimes the bank will not want to approve a mortgage, and earn more interest, for twenty or even thirty years? It’s time to get to know banking conservatism.
Along with the desire to earn, there is another side of the banks. Banks in Israel are subject to fairly close supervision by the Bank of Israel. The supervision requires the banks to show conservatism and caution, since no one wants to see another bank collapse in Israel. The short history of the country has already seen the collapse of a bank (the Commercial Bank), and those with a longer memory remember the crisis and regulation of bank shares that shook the entire country a few decades ago. The same banking conservatism means that not everyone who applies for a mortgage does get it. And sometimes, this conservatism goes too far. When this happens, there is something to be done to get a mortgage, despite the refusal.
When do banks refuse a mortgage?
As far as the banks are concerned, a mortgage loan is the safest loan. The reason for this is due to two reasons. First, the bank knows that most borrowers will do anything to pay the mortgage on time, every month. No one wants to get into trouble with the bank. Second, and even more important, the bank has security – a registration that will work on the property. In other words, the bank knows that if the borrowers do not pay, receive notices and still do not pay, they are really not helpless, on the contrary. The bank’s lawyers will be able to bring the house to a forced sale. But in fact, the banks don’t want to come to that. Realization (sale) of an asset does not look good from a public point of view and this is not the way the banks want to make a profit. They want to profit from interest, not from selling assets. Therefore, the banks first check the situation of the mortgage applicants, under a magnifying glass. The problem is that sometimes the bank will be quick to refuse a mortgage, for a marginal reason or for a historical reason. In other words, sometimes conservatism gets too extreme. And that’s not a bad thing, as far as the Bank of Israel is concerned, which, as mentioned, values conservatism very much.
There are factors or signs that make the bank refuse to give a mortgage or at least make it very difficult. for example:
- Registration of mortgage applicants as “restricted” in the Bank of Israel, currently or in the past.
- Business receivership or bankruptcy, currently or in the past.
- will be established in execution, now or in the past.
- Failure to meet loan repayments in recent years.
- Low income or occupational discontinuity.
- Older age, banks prefer relatively young borrowers (the elderly are difficult to insure with mortgage insurance).
- Borrowing together, mainly single parents but also singles with a single income – it is more difficult for them to get a mortgage compared to couples.
Sometimes, indeed these signs and others, indicate that a large mortgage at the current stage would not be the best idea. But a real inability to pay a mortgage must be distinguished from extreme banking conservatism. Extreme conservatism can turn a person into a mortgage refuser, for example because of an old debt that is neglected in execution (even a debt that has already been paid). If you have faced extreme banking conservatism and an inattentive bank clerk, it is important to know what to do.
This is how you turn from rejected to happy
Dealing alone with the conservative and bureaucratic banking system may discourage and even cause concern. But you don’t have to go through this process alone. You can use a private mortgage consultant, who has gained a lot of experience in obtaining mortgage approvals for refusers. The correct work process will be in-depth and include several things:
- A deep analysis of the current economic capacity should be performed. It is not advisable to take out a mortgage in advance that you will find it very difficult to pay.
- The credit history and financial conduct in the past and present should be thoroughly checked.
- You should come prepared, with all the answers, to the conversation with the bank clerks or the non-bank finance companies.
- You must not evade and explanations must be given, about the “warning signs” or “red flags” if they exist.
- And perhaps most importantly: remember that mortgages are not only available at banks. Today, even parties outside the banking system, legally approve a mortgage. These are insurance and finance companies that have received permission to provide financial services (in no way a gray market!). The share of these companies in the mortgage market is relatively small compared to the banks. Therefore, they show more flexibility and willingness to go towards the client, even if the bank refused.
Bottom line, being refused a mortgage is not the end of the story. It’s worth checking in depth, and now you know what to do.