Today marks the end of the rate wars as we’ve seen for the last 3 weeks. It will be the last day that lenders offer their 2.99% rate specials. It’s a day they have all been silently happy to see. Why? Because over the last few weeks bond yields, which is one way lenders fund their mortgages, have increased to the point where margins are very thin, if not non-existent. It then became a showdown to see who would bow out first and who would be left standing at the end. We lost Scotiabank and National Bank early in the contest but the others have held on and it will be no surprise if I wake up tomorrow and all the 2.99% offers are off the table.
There are a few non-bank lenders also competing in this sphere and it will be no surprise to see two of them stop their offering too. The third, currently lower than all the other offers at 2.89% for 4 years, may increase their rate but somehow manage to keep it under 3%. We’ll find out shortly.
The other big event this week is the arrival of the Federal Budget tomorrow and the mortgage industry is watching with baited breath to see if any new changes to mortgage rules are announced (for a list of possible changes click here).
Originally there was widespread speculation that a handful of changes were coming but recent comments by Finance Minister Jim Flaherty have changed that view. He would rather see market forces dictate the direction of mortgages instead of the government intervening for the fourth time since 2008.
Any tightening that is now expected is being influenced by the Canada Mortgage and Housing Corporation (CMHC) and the $600 billion cap that they have on lending. Their portfolio has grown rapidly in the last few years and the government has increased it to accommodate demand for insurance, however there is no expectation that further expansion in this cap will be allowed in the foreseeable future. The government feels that the banks should be taking on more of this risk rather than shifting it to the taxpayers in the form of government guarantees. The end result has been that portfolio insurance is being rationed and some of the riskier forms of lending (self-employed, rental properties) are now becoming harder to finance, and more expensive.
Risk premiums are being charged in the form of higher rates or lenders requiring that the borrower pay the cost for CMHC insurance even when there is 20% down.
The overall effect has already been felt as lender appetites for these types of deals has been deteriorating. The CMHC mandate to put Canadians in homes has not changed, but they are going back to their grassroots when they didn’t finance investment properties and were a bit more risk averse with self-employed individuals.
Lee Welbanks is a Mortgage Broker with The Mortgage Centre and trusted Spring Realty mortgage expert. To learn more about your funding options please Contact Lee today. Lee will be posting these informative “Market Minutes” each Wednesday for you to enjoy. Please remember to subscribe to the Spring Realty Insider list to receive new blog post notifications, featured properties and insider access to Toronto’s hottest new developments.