A mortgage rate war is underway as more than half of all mortgages held by Canadian banks are coming up for renewal over the next two years, an RBC analyst suggests.
With interest rates now down from peak levels, mortgage shoppers—especially those with mortgages locked in at historically low rates—will have a “strong incentive” to shop around for better deals, creating intense competition among lenders, RBC analyst Darko Mihelic wrote in a recent research note.
“In today’s market, lower mortgage rates will make a significant difference for Canadians whose mortgages were originated at all-time low interest rates,” he noted. “For a mortgage that was taken out in June 2020, a 50-basis-point impact in the renewal rate would result in annual savings of about $1,000.”
He adds that this will likely prompt mortgage brokers to “actively mine” their databases and preemptively reach out to clients to help them find more attractive renewal terms.
Mihelic points out that TD Bank, facing restrictions on its U.S. expansion, may turn its focus toward Canadian mortgage renewals in an effort to meet its financial targets. This could push other major players to sharpen their competitive edge.
“All Canadian banks view mortgages as a significant anchor product and, currently, loan growth across multiple loan categories is very low,” Mihelic said. “The chance to grab market share from a competitor is significant.”
A competitive challenge for brokers
Many brokers have pointed out that it’s becoming increasingly difficult to compete with the Big Banks, especially given their unusually aggressive mortgage rate pricing.
At a recent public appearance, John Webster, former CEO of Scotia Mortgage Authority, said there’s been a lot of “silly business” going on among the big banks as they strive to meet quarterly revenue targets. However, he added that it’s “a little bit early to say it’s solely driven by market share.”
He referenced Mihelic’s report, suggesting there’s been a “confluence of circumstances” that are driving the big banks to be more competitive on their mortgage product pricing, including TD’s recent troubles in the U.S. and CIBC having “challenges” with gaining market share.
“I don’t think that will continue,” Webster said. “I suspect in the first quarter…there’ll be more rationality in pricing, at least I hope so. It’s not sustainable .”
OSFI flags AI risks in its fall update
In its latest fall update, the Office of the Superintendent of Financial Institutions (OSFI) has raised concerns about increasing risks related to artificial intelligence (AI) and the operational resilience of Canada’s financial system.
While earlier reports focused on risks like real estate lending and credit, this update highlights two areas that have become more pressing: the challenges of managing new technologies like AI and ensuring financial institutions can withstand operational disruptions. These have become more pressing as the financial sector grows more dependent on technology, including AI.
To address these concerns, OSFI plans to take several important steps, including evaluating how institutions are handling third-party risks and cyber threats, and reviewing business continuity and disaster recovery plans. OSFI will also focus on understanding the impact of AI on the risk landscape and plans to update its guidelines on risk management by the summer of 2025.
“OSFI will adapt and respond to intensifying integrity and security risks within the Canadian financial system in a manner consistent with the 2023 change in OSFI’s mandate,” said OSFI head Peter Routledge.
Canadian insolvencies declined in September
Insolvencies across Canada dropped slightly by 0.9% in September after a sharp decline in August, pointing to some stabilization.
“Data has been quite volatile since the beginning of the year, even on a seasonally-adjusted basia,” noted Charles St-Arnaud, chief economist at Alberta Central. “Nevertheless, looking through the volatility, it appears that insolvencies are stabilizing in recent months.”
Year-over-year, however, insolvencies are still up 8.9%, with most of the rise coming from a 9.5% increase in proposals (where borrowers renegotiate terms) and a 6.7% increase in bankruptcies, according to data from Innovation, Science and Economic Development Canada.
The consumer insolvency rate saw a small dip to 0.333 per 1,000 people, but it’s still close to its highest level since January 2020. Provinces like Alberta, Ontario, and Manitoba have seen insolvency rates much higher than before the pandemic, reflecting the ongoing financial strain caused by high debt and rising interest rates.
Alberta continues to have the highest insolvency rate in the country at 0.425 per 1,000 people.
Toronto vs. Montreal: A tale of two rental markets
A recent study by Money.ca highlights the stark contrast between Toronto and Montreal when it comes to renting and saving for a home.
In Montreal, renters spend a manageable 26.3% of their income on rent, with the average one-bedroom unit costing $960 per month. This makes Montreal one of the more affordable major cities for renters looking to balance housing costs with saving for a home.
In contrast, Toronto ranks as the worst city for renters hoping to save, with residents spending a staggering 48.5% of their income on rent. With an average one-bedroom rent of $1,691 and an annual income of $41,800, the high cost of living in Toronto leaves little room for savings, making it a tough market for prospective homebuyers.
While Montreal offers a more balanced rent-to-income ratio, Toronto’s steep rental costs mean tenants have a harder time putting aside money for a future down payment. In fact, renters in Montreal would need significantly less time to save for a home deposit compared to those in Toronto.
This comparison underscores the challenges faced by renters in Canada’s most expensive cities. While Montreal offers a more affordable path to homeownership, Toronto’s soaring rent prices highlight the growing divide between rental markets across the country.
Key findings for other cities:
- Victoria: Renters spend 39.01% of their income on rent, with an average monthly rent of $1,427.
- Quebec City: Renters spend just 21.65% of their income on rent, making it the best city for those looking to rent and save for a home.
- St. John’s: With an average rent of $904, residents spend 27.74% of their income on rent, making it one of the more affordable options.
- Vancouver: Renters spend 46.1% of their income on rent, with average rents of $1,697, making it one of the toughest cities for renters to save for a home.
- Winnipeg: Residents spend 31.26% of their income on rent, with an average monthly rent of $1,102, offering a more balanced rent-to-income ratio.
- Halifax, NS is the third-worst city in terms of rent affordability, with an average monthly rent of $1,322 for a one-bedroom unit. Since the average annual income is $38,700, tenants spend 40.99% of their earnings on rent.
Mortgage snippets
- Neo Financial, a Calgary-based fintech company, has secured a C$360 million Series D funding round to expand its AI-driven banking services. The investment is led by prominent figures including Shopify’s Tobi Lütke and Stewart Butterfield of Slack. This follows Neo’s recent recognition as Canada’s top-growing company.
The funding comprises C$110 million in equity and C$250 million in debt financing, positioning Neo to challenge traditional banks with its technology-first approach. The company offers a suite of financial products, including credit cards, mortgages, and high-interest savings accounts, all integrated with AI for enhanced user experience.
However, recent fundraising documents reveal a significant decline in Neo Financial’s valuation, dropping from C$1.5 billion in 2022 to C$1.1 billion in 2023, according to a report from The Logic.
- Canadians’ confidence in economy remains strong, says Nanos report: The Bloomberg Nanos Canadian Confidence Index (BNCCI) rose to 56.59 this week, up from 55.71 four weeks ago. The 12-month high for the index is 56.74, reflecting continued optimism despite economic challenges. “Canadians continue to show resilience, with improved views on job security and finances driving overall optimism,” said Nik Nanos, Chief Data Scientist.
A major contributor to this optimism is the Pocketbook Sub-index, which tracks job security and personal finances. It hit a 19-month high of 56.50, up from 55.60 last month, indicating greater confidence in financial stability and employment prospects.
The Expectations Index, which measures outlooks on the economy and real estate, also rose to 56.67, compared to 55.82 previously, suggesting stronger confidence in future economic conditions.
- Mortgage arrears held steady: Canada’s national mortgage arrears rate held steady at 0.20% in August, with 10,064 mortgages now three or more months overdue, according to the Canadian Bankers Association (CBA). This is unchanged from July, but up from the pandemic low of 0.14% in 2022.
Saskatchewan continues to report the highest arrears rate at 0.58%, while Ontario (0.16%) and British Columbia (0.17%) maintain the lowest rates.
- Building permits reach 7-year high: Building permits hit their highest level in nearly 7 years, rising 11.5% in September to a seasonally adjusted $13 billion, according t the latest data from Statistics Canada.
The growth was driven by multi-family permits (up $505.5 million), while single-family permits rose $35.1 million. Ontario led the provinces with a 25% increase in both residential and non-residential construction intentions, totalling $5.9 billion.
Next Steps: Mortgage industry career moves
“Next Steps” is a feature in our bi-weekly news roundups that highlight notable job changes and career advancements within the mortgage industry. If you have a job update to share, we welcome your submissions to keep the community in the loop.
Ryan Joseph
Ryan Joseph has joined Strive Financial as the new Director of Business Development for Alberta Central & South.
With over 18 years of experience in the mortgage industry, Ryan brings extensive expertise to the role.
He spent 13 years as a broker and has spent the last five years in lender sales.
Tim Rye named Senior Vice President of Commercial Solutions at Teranet
Teranet has announced the appointment of Tim Rye as the new Senior Vice President of Commercial Solutions.
In his new role, Rye will oversee the strategy for the company’s Geospatial, Financial, Legal, Real Estate, and Data Analytics solutions, with a focus on driving growth and innovation across the organization.
Known for his customer-centric approach and leadership skills, Rye is expected to play a key role in advancing Teranet’s business objectives.
Colin Morris appointed VP of Business Development and Partnerships at Teranet
Colin Morris has joined Teranet as its new Vice President of Business Development and Partnerships.
In this role, Colin will lead the company’s efforts to drive new business, strengthen partnerships, and enhance the success of our customers and partners.
With a focus on strategic growth, team development, and customer-centric solutions, Colin is poised to bring significant value to the role and contribute to Teranet’s continued success.
FSRA executive takes on national leadership role
Mehrdad Rastan, Executive Vice President, Credit Union and Insurance Prudential at FSRA, has been appointed Chair of the Credit Union Prudential Supervisors Association (CUPSA) for 2024-25.
CUPSA is an interprovincial association focused on promoting effective regulation and supervision of Canadian credit unions and caisses populaires.
“I look forward to leading this association over the coming year to continue building on our progress and maintaining a strong and sustainable credit union and caisse populaire sector,” said Rastan.
Rastan succeeds Brent Schellenberg, CEO of Credit Union Deposit Guarantee Corporation of Saskatchewan.
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Last modified: November 14, 2024