6 Jun

Bank of Canada Cuts Overnight Rate 25 bps to 4.75%

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Posted by: Dean Kimoto

A collective sigh of relief as the BoC cut rates for the first time in 27 month

Today, the Bank of Canada boosted consumer and business confidence by cutting the overnight rate by 25 bps to 4.75% and pledged to continue reducing the size of its balance sheet. The news came on the heels of weaker-than-expected GDP growth in the final quarter of last year and Q1 of this year, accompanied by CPI inflation easing further in April to 2.7%. “The Bank’s preferred measures of core inflation also slowed, and three-month measures suggest continued downward momentum. Indicators of the breadth of price increases across components of the CPI have moved down further and are near their historical average.”

With continued evidence that underlying inflation is easing, the Governing Council agreed that monetary policy no longer needs to be as restrictive. Recent data has increased our confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain. “Governing Council is closely watching the evolution of core inflation and remains particularly focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”

As shown in the second chart below, the nominal overnight rate remains 215 basis points above the current median CPI inflation rate, which shows how restrictive monetary policy remains. The average of this measure of real (inflation-adjusted) interest rates in the past 30 years is just 60 bps. The overnight rate is headed for 3.0% by the end of next year.

Bottom Line

There are four more policy decision meetings before the end of this year. It wouldn’t surprise me to see at least three more quarter-point rate cuts this year. While the overnight rate is likely headed for 3.0%, it will remain well above the pre-COVID overnight rate of 1.75% as inflation trends towards 2%+ rather than the sub-2% average in the decade before COVID-19.

Please Note: The source of this article is from SherryCooper.com/category/articles/
31 May

Weaker-than-expected Canadian Q1’24 GDP Growth Increases Odds of a Rate Cut Next Week

General

Posted by: Dean Kimoto

The likelihood of a rate cut next week has increased due to disappointing Canadian GDP growth. Real gross domestic product (GDP) only rose by 1.7% (seasonally adjusted annual rate) in the first quarter of this year, which is well below the expected 2.2% and the Bank of Canada’s forecast of 2.8%. Fourth-quarter economic growth was revised to just 0.1% from 1.0%. These figures have led traders to increase their bets on a Bank of Canada rate cut when they meet again next week.

In the first quarter of 2024, higher household spending on services—primarily telecom services, rent, and air transport—was the top contributor to the increase in GDP, while slower inventory accumulation moderated overall growth. Household spending on goods increased modestly, with higher expenditures on new trucks, vans and sport utility vehicles.

On a per capita basis, household final consumption expenditures rose moderately in the first quarter, following three quarters of declines. Per capita spending on services increased, while per capita spending on goods fell for the 10th consecutive quarter.

Business capital investment rose in the first quarter, driven by increased spending on engineering structures, primarily within the oil and gas sector. Business investment in machinery and equipment also increased, coinciding with increased imports of industrial machinery, equipment and parts.

Resale activity picked up in Q1, driving the rise in housing investment, while new construction was flat. Ontario, British Columbia and Quebec posted the most significant volume increases in resales, while prices in these provinces fell in the first quarter.

New housing construction (+0.1%) was little changed in the first quarter, as work put in place decreased for all dwelling types except double houses. Costs related to new construction, such as taxes and closing fees upon change in ownership, increased in the quarter and were mainly attributable to newly absorbed apartment units in Ontario.

The household savings rate reached 7.0% in the first quarter, the highest rate since the first quarter of 2022, as gains in disposable income outweighed increases in nominal consumption expenditure. Income gains were derived mainly from wages and net investment income.

Investment income grew strongly in the first quarter of 2024 due to widespread gains from interest-bearing instruments and dividends. Higher-income households benefit more from interest rate increases through property income received.

Household property income payments, comprised of mortgage and non-mortgage interest expenses, posted the lowest increases since the first quarter of 2022, when the Bank of Canada’s policy rate increases began.

Bottom Line
This is the last major economic release before the Bank of Canada meets again on June 5. Traders in overnight markets put the odds of a rate cut at next week’s meeting at about 75%, up from 66% the day before. Bonds rallied, and the yield on the Canadian government two-year note fell sharply, reflecting this change in sentiment.

The Bank of Canada has good reason to cut the overnight policy rate next week. Core inflation measures have decelerated sharply in recent months, and the economy is growing at a much slower pace than the central bank expected. The Bank has been very cautious, and there remains the possibility that they will wait another month before pulling the trigger on rate cuts, but at this point, we see no reason to delay any further.

Please Note: The source of this article is from SherryCooper.com/category/articles/
24 May

OSFI says mortgage payment shock poses a key risk to Canada’s financial system

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Posted by: Dean Kimoto

Canada’s banking regulator says high borrowing costs and a wave of expected renewals in the coming 18 months pose key risks to Canada’s financial system.

With 76% of outstanding mortgages expected to come up for renewal by the end of 2026, OSFI says homeowners face the risk of payment shock, particularly those who took out mortgages between 2020 and 2022 when interest rates were at historic lows.

“Households that are more heavily leveraged and have mortgages with variable rates but fixed payments will feel this shock more acutely,” OSFI said in its Annual Risk Outlook for 2024-25. “We expect payment increases to lead to a higher incidence of residential mortgage loans falling into arrears or defaults.”

OSFI notes that financial institutions could face higher credit losses in the event of a weakened residential real estate market. It added that mortgages that have already experienced payment increases, such as adjustable-rate mortgages, are already showing higher rates of default.

In response to this risk, OSFI said its previously announced loan-to-income limits for lenders’ uninsured mortgage portfolios will help “prevent a buildup of highly leveraged borrowers.”

In March, OSFI confirmed that federally regulated banks will have to limit the number of mortgages that exceed 4.5 times the borrower’s annual income, or in other words those with a loan-to-income (LTI) ratio of 450%.

“We do not expect these limits to be binding under the current interest rate environment,” OSFI noted, adding that these institution-specific loan-to-income limits are “supervisory actions” and that no additional details could be disclosed.

Additionally, OSFI said its decision in December to leave the minimum qualifying rate for uninsured mortgages unchanged at the greater of the mortgage contract rate plus 2% or 5.25% will “help ensure borrowers can still make payments if they experience negative financial shocks…”

Fixed-payment variable-rate mortgages still a concern

OSFI also once again singled out variable-rate mortgages with fixed payments as a “specific concern.”

These mortgage products, which are offered by most big banks except for Scotiabank and National Bank, keep monthly payments fixed even as interest rates fluctuate. When rates rise, as they have over the past two years, less of the monthly payment goes towards principal repayment and a greater portion ends up going towards interest costs.

These mortgage products currently make up about 15% of outstanding residential mortgages in Canada.

“If mortgage rates remain elevated, the financial commitment required by borrowers to return to their contractual amortization (for example, lump-sum payment, mortgage payment increase) may put financial strain on many of those households,” OSFI said.

This isn’t the first time OSFI has voiced its concerns about fixed-payment variable-rate mortgages. Last fall, OSFI head Peter Routledge told a Senate standing committee that the regulator views such mortgages as a “dangerous product” that put certain borrowers at increased risk of default.

While he said OSFI’s role is not to “impose a judgment on product design,” Routledge did say OSFI believes “the system would be healthier with less of that product.”

Other risks facing Canada’s financial system

OSFI’s Annual Risk Outlook also addressed other risks facing the financial system. Those include:

  • Wholesale credit risk

OSFI says wholesale credit risk, which includes commercial real estate (CRE) lending as well as corporate and commercial debt, “remains a significant exposure for institutions.”

The regulator noted that higher interest rates, inflation and lower demand “have put CRE markets under pressure” and that it expects these challenges to extend into 2024 and 2025.

  • Funding and liquidity risks

OSFI notes that liquidity risks “are a persistent concern” and can arise if depositor behaviour shifts dramatically.

“Funding and liquidity risk remains linked to credit risk as deteriorating conditions can negatively impact securitization markets,” it said. “This can trigger increased liquidity risk for institutions that rely on securitization as a key source of funding.”

In response, OSFI said it plans to broaden and intensify its assessment of liquidity risk.

This article was wrtten for Canadian Mortgage Trends by:

Steve Huebl
Steve Huebl is a graduate of Ryerson University’s School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.
23 May

Canadian CPI Inflation Eased In April, Raising the Chances of a June Rate Cut

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Posted by: Dean Kimoto

The Consumer Price Index (CPI) rose 2.7% year-over-year (y/y) in April, down from 2.9% in March. This marks the fourth consecutive decline in core inflation. Food prices, services, and durable goods led to the broad-based deceleration in the headline CPI.

The deceleration in the CPI was moderated by gasoline prices, which rose faster in April (+6.1%) than in March (+4.5%). Excluding gasoline, the all-items CPI slowed to a 2.5% year-over-year increase, down from a 2.8% gain in March.

The CPI rose 0.5% m/m in April, mainly due to gasoline prices. On a seasonally adjusted monthly basis, it rose 0.2%.

While prices for food purchased from stores continue to increase, the index grew slower year over year in April (+1.4%) compared with March (+1.9%). Price growth for food purchased from restaurants also eased yearly, rising 4.3% in April 2024, following a 5.1% increase in March.

According to Bloomberg calculations, the three-month moving average of the rate rose to an annualized pace of 1.64% from 1.35% in March. That’s the first gain since December.

The Bank of Canada’s preferred core inflation measures, the trim and median core rates, exclude the more volatile price movements to assess the level of underlying inflation. The CPI trim slowed to 2.9% y/y in April, and the median declined to 2.6% from year-ago levels, as shown in the chart below. Rising rent and mortgage interest costs account for a disproportionate share of price growth, with shelter costs up 6.4% year-over-year. Growth in mortgage interest costs slightly decreased in April but remained 24.5% higher than a year ago.

The breadth of inflationary pressures narrowed again in April, with the proportion of the CPI basket experiencing growth exceeding 3%, decreasing to 34% from 38% in March.

Bottom Line

April’s inflation readings largely met expectations but with underlying details (including further slowing in the BoC’s preferred ‘core’ measures) pointing to a further reduction in inflationary pressures. The Bank of Canada is as concerned about where inflation will go in the future as where it is right now. Still, Canada’s persistently softer economic backdrop (declining per-capita GDP and rising unemployment rate) increases the odds that price growth will continue to slow. The case for interest rate cuts from the Bank of Canada continues to build. The central bank has every reason to cut rates at their next meeting on June 5. Still, given the BoC’s extreme caution, we must consider the possibility that they will wait until the July meeting to take action, and only if inflation continues to recede.

Please Note: The source of this article is from SherryCooper.com/category/articles/
15 May

Why you shouldn’t fear a credit score drop when applying for a mortgage

General

Posted by: Dean Kimoto

In the complex world of home financing, a common concern among our clients involves the impact of credit inquiries on their credit scores. Often, the thought of a mortgage credit check can make potential borrowers hesitant and fear it might lower their overall credit scores.

We’ve all heard it before…

“Can’t you just use my free Borrowell report?”

“I don’t want anyone to pull my credit, it will hurt my score!”

Oh sure, sometimes our prospective clients just want a judgment call on their borrowing power and in most cases, I am comfortable assessing files without having to pull their official credit history. I’ve taken several client files pretty far without going through a hard inquiry.

However, without a complete history and proper credit report, my advice and opinions on their borrowing power will be filled with disclaimers, just in case there are any outstanding balances, loans, or late payments my client has either forgotten or has not yet disclosed to me. And, of course, sometimes there are outright errors in the credit report.

Understanding credit inquiries in mortgage applications

As mortgage professionals, it’s our duty to clarify and reassure clients about the realities of credit inquiries and the minimal impact they typically have.

Let’s dive into why borrowers shouldn’t worry excessively about their mortgage credit inquiry. To be clear, if someone wants a formal mortgage pre-approval or even a rate hold, then yes, absolutely, we have to pull a credit report.

Here’s the reality:

  • Minimal impact: A single credit inquiry usually has a very small effect on your credit score, potentially lowering it by just 5 to 8 points.
  • Credit score buffer: Most diligent credit users have a score buffer that more than compensates for the minor deductions caused by inquiries.
  • Purpose of building credit: Remember, a big reason for maintaining a good credit history is to utilize it when making significant decisions like buying or refinancing a home.

In essence, avoiding a credit check could hinder your ability to get pre-approved for a mortgage. It’s crucial to let your mortgage professional proceed with the necessary checks to ensure you’re on the right track to securing your home loan.

Canadian home sames soften in June

Real-world insights into credit inquiries

Note to our readers: For client privacy, the names of the subjects in this story have been changed. The values mentioned in this story are accurate and true. These case studies are presented to educate Canadians in a couple of different home purchase situations. One is for move-up buyers, and the other is about first-time homebuyers.

Case Study 1: The high achievers with credit concerns

  • Client Story: Tiana & Leo
  • Combined household income: $181,600
  • Current home value: $695,000
  • New home value: $910,000
  • Client goal: Selling their townhome to purchase their forever home

Tiana and Leo live in a townhome in Kitchener and recently they came to us wanting to be pre-qualified for a mortgage. They and their two kids are excited about moving up to their forever home. But there was a snag—Tiana was very hesitant about us pulling her credit report. She feared it might negatively impact her credit score.

Their outcome: Why it pays to check even if you’re scared!

With a bit of guidance and reassurance about the process, Tiana and Leo agreed to let us proceed with the credit inquiry, which of course is a standard step in the mortgage pre-approval process.

Drum roll please…

When we checked her credit, Tiana had a pristine score of 900! The absolute pinnacle, something we only see once in a blue moon! Clearly, she had nothing to worry about. It doesn’t get any better than 900!

Naturally with that credit score (Leo’s score was also very high), securing the pre-approval they wanted became a piece of cake!

Case Study 2: Multiple inquiries, minimal impact

  • Client story: Fiona & Bart
  • Combined household income: $251,700
  • Current home value: N/A – they are first-time buyers
  • New home value: $1,600,000
  • Client goal: They Are Ready To Purchase Their First Home

Fiona and Bart, a forward-thinking couple in their early thirties, approached us with a clear goal: they were ready to purchase their first home. Unlike many first-time buyers, they were quite relaxed about the entire credit scoring process, understanding its necessity in the home-buying journey.

Their outcome: Stable scores through multiple inquiries

Given that a credit report’s validity lasts only 30 days, we found ourselves needing to pull their reports multiple times as we journeyed from pre-approval to final approval, while at the same time negotiating with two different lenders over a few months.

Additionally, each bank required their own credit pull. Despite the frequency of all these inquiries, the impact on their credit scores was really minimal.

Here’s how it played out:

  • Initial score: Fiona started with 823, and Bart with 834.
  • During the process: Fiona’s score fluctuated slightly, dropping to 817 before returning to 823, showing her credit score’s resilience. Bart’s score dipped modestly to 822.
  • Final score: By the end of the process, both scores remained strong and high, demonstrating that multiple inquiries (in this case, five consecutive inquiries in the span of three months), when done within a proper context, do not have a significant detrimental effect.

Credit score comparison

This is a comparison chart for all the dates and inquiries we made for Fiona and Bart. You can clearly see that even with five credit inquiries, there were minimal changes to both of their scores.

This experience underscores the importance of not sweating the small stuff. Multiple inquiries might sound daunting, but in the structured environment of mortgage applications, they are just part of the process and are less impactful than often feared.

Why mortgage credit inquiries should not deter you

Understanding the nuances of credit inquiries can significantly ease the concerns of both mortgage professionals and their clients. Personal credit expert Richard Moxley notes that multiple mortgage-related inquiries over 45 days only impact your Equifax Canada score as a single inquiry, and with TransUnion Canada, the same is true over a 15-day period.

This minimizes the impact on your credit score and highlights the importance of proceeding with necessary credit checks during the mortgage application process.

Key takeaways:

  • Educate clients: As mortgage professionals, it is our responsibility to educate clients about the true impact of credit inquiries.
  • Reassure borrowers: Reassure your clients that a high credit score is built to withstand such inquiries, particularly when they are crucial for securing a mortgage.
  • Encourage transparency: Encourage clients to consent to credit pulls to facilitate a smoother pre-approval process.

By demystifying the impact of mortgage credit inquiries, we can help clients move forward with confidence, knowing their credit health is secure and their home financing is on track.

24 Apr

Fixed mortgage rates are rising. What’s the deal?

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Posted by: Dean Kimoto

As variable-rate mortgage holders eagerly anticipate the Bank of Canada’s first rate cut, fixed rates are heading in the other direction: up.

After peaking in early October, Government of Canada bond yields—which lead fixed mortgage rates—plummeted by 125 basis points, or 1.25 percentage points, by early January.

Since reaching that low, they’ve rebounded by approximately 60 bps, with around 25-bps worth of those gains seen in the past three weeks. As a result, fixed mortgage rates are being taken along for the ride.

Strong economic data to blame

Rate expert Ron Butler of Butler Mortgage says 2- to 5-year fixed mortgage rates are up across various lenders by anywhere from 15 to 30 bps in recent weeks.

Butler says the gains are being driven primarily by recent U.S. data, including strong employment, GDP and inflation figures.

As we reported earlier this month, U.S. CPI inflation in March was up 0.4% month-over-month and 3.5% on an annualized basis. That caused some economists to speculate that U.S. rate cuts could get pushed out to later this year, or potentially even until next year.

On Wednesday, U.S. Federal Reserve Chair Jerome Powell seemed to confirm those calls when he said a “lack of further progress” on the inflation front could lead to interest rates staying higher “for as long as needed.”

In Canada, where GDP growth and employment have held up better than expected, markets still see the first Bank of Canada rate cut being delivered at either its June or July rate meetings, though that can always change.

Where could fixed rates go from here?

Rate expert and mortgage broker Ryan Sims, who predicted the rise in rates in a CMT column published earlier this month, thinks fixed rates still have some room to rise.

“I still see mortgage rates going up, although I would think another 20 to 30 bps would do it,” he told CMT. “The gap between fixed and variable is too much, and the bond market had priced in a lot of cuts that I don’t think will happen for a lot longer than people thought.”

The average deep-discount 5-year fixed rate available for insured mortgages (those with a down payment of less than 20%) is currently around 4.79%. “I think we see it get to 5.29%,” Sims said.

While fixed rates are widely expected to resume their decline once Bank of Canada rate cuts are imminent, Sims says there’s a wildcard that should be considered: that fixed rates continue to rise even as the BoC’s benchmark rate falls.

“Canada’s fiscal policy is in bad shape, and I think you could see government bonds, and by default mortgage rates, pick up—regardless of [BoC Governor] Tiff Macklem dropping overnight rates,” he said. Rate cuts that are delivered too soon could be seen as a “panic move” by international markets and help drive yields higher, he notes.

“People forget that interest rates are about perceived risk, and after [this week’s] budget, risk in Canada, at least from an investing perspective, went up,” Sims added. “I could easily see another 20 to 30 bps into Canada government yields over the next 12 to 18 months just on risk—regardless of what overnight rates actually do.”

 

This article was written for Canadian Mortgage Trends by:

Steve Huebl
Steve Huebl is a graduate of Ryerson University’s School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.
8 Apr

Spring housing market surge unlikely as affordability, cost of living weigh on buyers

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Posted by: Dean Kimoto

After five straight holds of the Bank of Canada’s key interest rate that followed its hiking cycle of more than a year, economists say a rebound awaits the national housing market — but don’t expect a big surge just yet.

The central bank is expected to again hold its key rate steady when it announces its decision Wednesday, but it’s unclear what direction it will take next.

With modest cuts likely in store later this year — some forecasts call for those to begin as soon as June — it could take months before buyers are confident enough to come crawling back from the sidelines.

That uncertainty may keep some buyers cautious throughout the spring, said TD Bank economist Rishi Sondhi.

“I think it’s a bit of a muddy backdrop there and maybe that might be restraining some of the activity,” he said.

But Sondhi said Canada’s housing market is “akin to a bit of a coiled spring,” noting sales activity and prices typically jump when there’s a shift “that jolts the market” such as an interest rate cut.

“There’s significant pent-up demand out there, particularly in Ontario and B.C., so it just takes a bit of a spark.”

In its latest report on national home sales and pricing data, the Canadian Real Estate Association hinted that February could mark “the last relatively uneventful month of the year.”

“After two years of mostly quiet resale housing activity, there’s a feeling that things are about to pick up,” CREA chair Larry Cerqua said in a statement last month.

“At this point, it’s hard to know whether buyers are going to wait for a signal from the Bank of Canada or whether they’re just waiting for the spring listings to hit the market.”

Greater Toronto Area-Realtor Dean Artenosi called the current moment a “tipping point where the worst is behind us.” He said the central bank has signalled that interest rates have “levelled out” through its consecutive rate holds, and that has made buyers more optimistic.

“The mood and the mindset, the psyche, is that we’re back to a normal market,” said Artenosi, co-owner of Coldwell Banker The Real Estate Centre Brokerage.

“People have gotten comfortable … and are used to making the payments at these higher rates. Buyers are starting to come back into the marketplace. Obviously there’s talk of the rates starting to come down now and we’re seeing multiple offers again on some properties.”

Out West, activity cooled in March after 2024 got off to a red-hot start, said Tim Hill with Re/Max All Points Realty.

The Vancouver real estate agent said many of his clients now find themselves in a holding pattern while waiting for rates to fall. He said others are weighing the pros and cons of buying before that point in time, which is expected to spur price growth amid lower borrowing costs.

“We can all feel pretty confident that (the central bank is) not making a change yet, as much as people might wish. But maybe we’ll get some more information in their press release of where their heads are at and when we might see that Bank of Canada rate come down,” said Hill.

“For me, I’m feeling now that we’ve seen this kind of lull, I think April is going to be a really tell-tale month for how the rest of the spring goes.”

RBC assistant chief economist Robert Hogue predicted a “gradual” rebound later this year as the central bank’s rate-cutting cycle progresses, rather than a major uptick in activity following its first reduction.

He said there are some exceptions to that forecast, notably the Calgary market, which has remained strong despite elevated rates. Increased demand from interprovincial migration and below-average inventory have kept the market tight in that city, according to the local real estate board.

“That’s a market that continues to be pretty robust and we don’t see that changing,” Hogue said.

Despite pent-up demand, affordability remains a major issue in markets such as Toronto, Vancouver and Montreal.

“I don’t see it as much of an issue of being prudent or cautious, but more in terms of the budget constraint to buyers,” said Hogue.

He said Canada could see a “series of small waves” in some markets within the next few months, where activity picks up as some try to get ahead of interest rate cuts.

“For those mini-waves to be sustained, you need a critical mass of buyers making their way back into the market,” Hogue said.

“For that, our view remains that we need to see a significant drop in mortgage rates, which I think is more of a second half of 2024 story than the spring market.”

Artenosi said he’s urging his clients not to wait. While borrowing conditions could be more favourable in the months to come, he warned of other factors, including Canada’s growing population, that could make it more difficult to buy at an affordable price.

Statistics Canada’s live population tracker showed Canada’s population topped 41 million in late March, less than a year after hitting the 40-million milestone.

“Playing the waiting game is a mistake,” said Artenosi, who added those holding out may increasingly find themselves in bidding wars.

“There’s going to be no perfect scenario.”

 

This article was written for Canadian Mortgage Trends by Sammy Hudes

29 Mar

BMO ramping up its broker channel division with new network partnerships

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Posted by: Dean Kimoto

Since its official launch in late January in Ontario and Atlantic Canada, BMO’s BrokerEdge division has been making waves and slowly growing its presence in Canada’s mortgage broker channel.

The bank kicked off its return to the broker channel—following a 16-year hiatus—in a “small and very deliberate” way, Justin Scully, Head of BMO BrokerEdge, told CMT in a recent interview.

That involved working with a small group of brokers from DLCG (Dominion Lending Centres Mortgage Group) and M3 Group during its soft launch in January before expanding to a select group of brokers from TMG the Mortgage Group in early March.

“We have been in a controlled state with a very small group of select brokers to ensure that all the functionality is working as intended and that we can deliver on providing an excellent broker and customer experience,” said Paula Oliveira, BMO’s Regional Vice President, Ontario and Atlantic Canada. “That’s our main priority right now.”

Scully added that despite all of the team’s preparations in the lead-up to the launch, “we’ve learned a few things and we feel even better about coming back into the channel.”

“Basically we’ve been able to test the different intake points to make sure things worked with each network, each sub-network, each POS [Point of Sale], different deal types, and it’s all gone according to plan,” he added.

And so far, feedback from the bank’s broker partners has been positive.

Scully confirmed that BMO expects to be operating in the broker channel nationwide by fiscal 2026, with a West Coast roll-out up next.

Working to expand its product offerings

BMO has also confirmed that it is actively working to introduce more of its lending products and programs to the broker channel.

For now at least, access to certain specialty lending programs are only available through BMO’s proprietary channel. This includes the bank’s Canadian Defence Community Banking program, which caters to members of Canada’s armed forces, as well as BMO’s Homeowner ReadiLine, the bank’s revolving home equity line of credit (HELOC).

“We don’t have our HELOC product yet, but we will,” Scully confirmed, adding it should be available by the end of the year or early 2025. “I would say the risk appetite in both channels is the same. We do not have a different appetite by channel.”

Oliveira noted that broker clients do have access to some of the bank’s other popular programs, including its short-term rental financing program, which caters to services like Airbnb and is unique in the A-lending space.

Other programs include new construction financing, which uses the current appraised value of the property to determine the loan-to-value (LTV), and a program for high-net-worth clients that allows them to use liquid assets as an alternate source of down payment up to a maximum LTV of 80%.

“So products like this will give us the leverage to be very respected in the broker space,” Oliveira said.

In addition to these product offerings, BMO has also been promoting the benefits of its team of Welcome Advisors, who will connect with clients in the post-approval and pre-funding phase and work with them again post-funding.

“It’s about really understanding what the client needs and how can we help ensure they are in a better financial position after going through such a large purchase,” Oliveira said.

“The design decisions we’ve made around the welcome advisor team and the way we can help customers with all their other financial needs, and the way we envision that ultimately interfacing as a value add to brokers, has been really well received,” Scully added.

A focus on customer acquisition

Since it first publicly announced its return to the broker channel last summer, BMO has been open about its goal of building holistic relationships with customers rather than merely securing mortgage deals.

Interestingly, Scotiabank has recently embarked on a similar path, reporting that in the first quarter, 70% of its new mortgage deals involved clients who had multiple financial products with the bank. This move signals a broader industry trend of banks wanting to deepen their relationships with clients across various financial products and services beyond the traditional mortgage offering.

“This is about customer acquisition, not just mortgage acquisition for BMO,” Scully said. “And so, we’re looking for brokers who want to be with us on our journey to franchise customers, to take a mortgage customer and have a real, meaningful conversation about how we can help them across their financial needs.”

Scully acknowledges that it’s not a vision that will necessarily be shared by all brokers. “If our broker doesn’t support that and doesn’t understand that’s the most critical element for BMO, it’s okay,” he said. “So, there will be brokers for whom BMO BrokerEdge is not a fit, and we’re good with that.”

The brokers BMO wants to partner with

Once BMO BrokerEdge is fully expanded across the country, Scully said the bank will continue to be selective about the brokers it chooses to work with to maintain a focus on quality and BMO’s business objectives within the channel.

“We’re really transparent about what matters to us. We we want brokers that run a really clean business, with a propensity to do a lot of A-, bank-type business,” he said.

“We do know that in the broker channel there tends to be a little bit more focus on first-time homebuyers who tend to be a little bit more in default insured business,” he added. “And so, that’s certainly part of the approach and we intend to be very competitive in those spaces.”

Q&As

Both Oliviera and Scully addressed a variety of other topics during the interview, with some of the key highlights below.

  • On the bank’s commitment to offering same-day pricing responses to brokers:

“Definitely one of our commitments to our customers and to the brokers is to be responsive and to have everything aligned for them in order to provide an answer to their clients,” said Oliveira. “I’m not that in the beginning everything is going to be perfect, because we are going through a transition, but that’s our objective.”

  • On the reputation BMO is trying to build:

“We’re being really transparent with the brokers upfront. We’re going to do a lot of training on our appetite. What types of deals we like, what types we were less favourable, Because, if you’re going to meet a broker a year from now and you ask them about BMO, I want them to say we’re really efficient, we’re fast to yes, and we’re really reliable. And if they said those things, then I’d be thrilled.”

  • On the bank’s plans to continue offering fixed-payment variable-rate mortgages in light of concerns from OSFI:

“As we evolve, we’ll evolve the same across channels. When we did a fixed-payment variable rate product we did it because, in a rising rate environment, it gives customers time and flexibility to manage payments, and that’s been proven right,” said Scully. “Customers can take voluntary actions, whether they make a lump sum payment or they increase their payment, and many are doing so prior to renewals so that they minimize the payment increase. And then in a declining rate environment, the benefit would be that they’ll pay off their mortgage sooner.”

 

This article was written for Canadian Mortgage Trends by:

Steve Huebl
Steve Huebl is a graduate of Ryerson University’s School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.
27 Mar

Fairness for every generation

Latest News

Posted by: Dean Kimoto

Vancouver, British Columbia

Posted on: https://www.pm.gc.ca/en/news/news-releases/2024/03/27/fairness-every-generation

 

Everyone deserves to succeed. But today, for too many younger Canadians, doing as well as your parents or better – doesn’t seem possible. The middle-class dream feels out of reach. Your hard work isn’t paying off like it did for previous generations. Your paycheque doesn’t go as far as costs go up, and saving enough to go after your dreams seems harder and harder. It doesn’t have to be this way. Everyone deserves a fair shot at success.

One of the biggest pressures on young people right now is housing. This is particularly true for renters – where it feels like the deck is stacked against them. They are facing skyrocketing rents, renovictions, unfair competition, and a lack of housing options. While we’ve taken bold action to build more homes, faster, improve access to housing, and make homes more affordable, we know there is more to be done.

The Prime Minister, Justin Trudeau, today announced measures from the upcoming Budget 2024 to make the playing field fairer for renters and make it easier for them to become homeowners.

These measures include:

  • Launching a new $15 million Tenant Protection Fund. This would provide funding to legal aid and tenants’ rights advocacy organizations to better protect tenants against unfairly rising rent payments, renovictions, or bad landlords.
  • Creating a new Canadian Renters’ Bill of Rights, developed and implemented in partnership with provinces and territories. This would require landlords to disclose a clear history of apartment pricing so renters can bargain fairly. We will also crack down on renovictions, create a nationwide standard lease agreement, and give renters more agency.
  • Making sure renters get credit for on-time rent payments. Renters deserve credit for the money they put toward rent over the years, especially when it comes time to apply for a mortgage for their first home. We’re going to amend the Canadian Mortgage Charter and call on landlords, banks, credit bureaus, and fintech companies to make sure that rental history is taken into account in your credit score.

This is about protecting renters. But this is also about generational fairness – making sure Millennials and Gen Z, who are most likely to rent, get a level playing field in the rental market. This is just one of the things that we are going to be doing in this budget to build an economy that is fair for every generation. Alongside these measures, we’re building more homes faster, making life more affordable, and creating good jobs, to make sure every generation can get ahead. We will relentlessly fight for Canadians – taking concrete action to strengthen the middle class and make life better for everyone.

Quotes

“It’s too hard to find an affordable place to rent, especially for younger Canadians. That’s why in Budget 2024, we’re taking action to protect renters, make the rental market fairer, and open new pathways for renters to become homeowners. Let’s make sure renters count.”

The Rt. Hon. Justin Trudeau, Prime Minister of Canada

“Renters are facing rising rents across the country, and they need support today. Budget 2024 will take action to deliver generational fairness, help renters – who are increasingly younger Canadians – become homeowners, and ensure they aren’t alone when they have to defend their right to a place to call home. Renters deserve credit for the money they put toward rent over the years. We’re helping them get credit for rental payments so they can qualify for a mortgage, or even a lower rate, sooner and unlock the door to their first home.”

The Hon. Chrystia Freeland, Deputy Prime Minister and Minister of Finance

Quick Facts

  • The Government of Canada’s Budget 2024 will be tabled in the House of Commons by the Deputy Prime Minister and Minister of Finance on Tuesday, April 16, 2024.
  • The measures outlined above build on the progress we have already made to help renters become homeowners, address the unique challenges they face, and build more rental housing across Canada, including:
    • Launching the Tax-Free First Home Savings Account, which is already helping over 500,000 Canadians save faster for their first downpayment.
    • Removing the Goods and Services Tax (GST) from new rental housing to incentivize the construction of more apartment buildings, student housing, and seniors’ residences built for long-term rental accommodation.
    • Unlocking $20 billion in new financing to support up to 30,000 more rental apartments per year by increasing the annual limit for Canada Mortgage Bonds from $40 billion to up to $60 billion.
    • Helping low-income Canadians with the cost of housing by delivering direct rent support through the Canada Housing Benefit, an initiative jointly funded and co-developed with provinces and territories. The federal government recently announced a $99 million top-up to this benefit to make rent more affordable for Canadians. By 2027-28, the Canada Housing Benefit is expected to have helped over 300,000 low-income households with the cost of rent.
  • Canada’s economic plan is to build more homes faster and to make housing more affordable. This plan also includes:
    • The Apartment Construction Loan Program, a $40+ billion initiative that boosts the construction of new rental homes by providing low-cost financing to homebuilders. Since 2017, the Apartment Construction Loan Program has committed over $17 billion in loans to support the creation of more than 48,000 new rental homes. It is on track to build 101,000 new rental homes across Canada by 2031-32.
    • The Affordable Housing Fund, a $14+ billion initiative that supports the creation of new market and below-market rental housing and the repair and renewal of existing housing. It is designed to attract partnerships and investments to develop projects that meet a broad spectrum of housing needs, from shelters to affordable homeownership. As of December 31, 2023, the Fund has committed $8+ billion to repair or renew over 150,000 homes and support the construction of more than 32,000 new homes.
    • The Housing Accelerator Fund, a $4 billion initiative that encourages municipalities to incentivize building by making transformative changes, such as removing prohibitive zoning barriers. To date, the federal government has signed 179 Housing Accelerator Fund agreements which, combined, will fast-track an estimated total of over 750,000 housing units across the country over the next decade.
    • The Rapid Housing Initiative, a $4 billion fund that is fast-tracking the construction of 15,500 new affordable homes for people experiencing homelessness or in severe housing need by 2026. The Rapid Housing Initiative also supports the acquisition of existing buildings for the purpose of rehabilitation or conversion to permanent affordable housing units, focusing on the housing needs of the most vulnerable, including people experiencing or at risk of homelessness, women fleeing domestic violence, seniors, Indigenous Peoples, and persons with disabilities.
  • Progress on these and other programs and initiatives under Canada’s National Housing Strategy are updated quarterly at www.placetocallhome.ca. The Housing Funding Initiatives Map shows affordable housing projects that have been developed.
  • Since 2015, the federal government has helped almost two million Canadians find a place to call home.
22 Mar

What You Need to Know About Smart Homes!

Latest News

Posted by: Dean Kimoto

Technology is constantly evolving and adapting to our needs as a society and individuals. One of these exciting developments has been the creation and evolution of smart homes.

WHAT IS A SMART HOME?

A smart home is any home where the homeowners are able to control thermostats, lighting, appliances and other devices remotely over the internet through a smartphone or tablet. These can be set up through wired or wireless systems, allowing you full control wherever you are.

BENEFITS OF SMART HOMES

  • Easy Home Management: One of the biggest and most appealing aspects of a smart home is the easy home management it provides. The integrated systems not only give you full control over every smart aspect of your home, but also allows you to view insights and data, which can help you analyze daily habits and energy use.
  • Energy Savings: Smart homes provide opportunity for extensive energy efficiency and cost savings, depending on how you use the technology. Precise control over heating and cooling systems allows the system to learn your schedule and set preferences for the highest energy efficiency outcome. In addition, you can manage lighting to turn on and off at specified times to prevent energy waste. In addition, these homes are often stocked with top of the line appliances and electronics, with improved energy efficiency leading to further cost savings.
  • Increase Appliance Functionality: Using smart appliances and electronics allows you to get even more out of these household tools. For instance, a smart oven can help you cook your chicken to perfection and a built-in audio system can provide the perfect atmosphere to any party. Plus, connecting your appliances and other systems will improve automation and give you even more to love about your home.
  • Flexibility: With the ever-changing smart home technology, this affords you greater flexibility when it comes to your home and your changing needs.Smart homes are typically highly flexible, allowing you to easily swap out old models for updated versions, or to install new technology seamlessly.
  • Improved Home Security: Incorporating security and surveilliance features, such as cameras, into your smart home network will help you maximize your home security. There are various options for home automation systems containing motion detectors, automated locks and surveillance cameras so that you always know what is going on. You can even set it to receive security alerts in real time!
  • Growing Industry: Another advantage to smart homes is that this is a growing industry with technology that is constantly being worked on and improved. This means bigger and smarter tech will be available in the coming years, allowing for even greater cost savings, automation and control.

CONSIDERATIONS FOR SMART HOMES

I bet you are probably pretty excited now that you know what smart homes can do! However, before you jump in there are a couple considerations to keep in mind.

  1. How much automation do you want/need?
  2. What systems are most important to you (lighting, audio, climate, security, etc)?
  3. What is your budget?
  4. What are your future plans?

With the right preparation, a smart home can be a dream come true. It is important to understand how much technology you are comfortable with, and what systems are most important to you, so that you can create a plan and a budget to upgrade your current home – or so you know what to look for when you begin shopping.

Smart technology has come a long way! Smart homes are already incredibly intuitive and automated, with more technology and advancements to come. While some of us will always remain the “labor of love” type, many of us have less time and energy than we used to. Smart homes not only help save you money, but time and energy too so you can focus on more important things.