Former Scotiabank Mortgage head John Webster weighed in, noting that the big banks’ competitive pricing is unsustainable and unlikely to continue for long.
A mortgage rate war is expected to intensify, with more than half of all mortgages held by Canadian banks set to renew over the next two years, says an RBC analyst.
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 will be more rationality in pricing, at least I hope so. It’s not sustainable.”
This article was written for Canadian Mortgage Trends by:
