Canada’s mortgage wars continue to play out with banks and credit unions jockeying to offer the lowest rates, while at least one major financial services executive is criticizing the government for standing back and watching it happen.
According to RateHub, 5-year fixed mortgages are being offered at rock-bottom rates below 3 per cent at a number of financial institutions, including credit unions.
The race for cheaper rates began again in March, on the cusp of the crucial spring selling season, when the Bank of Montreal dropped its 5-year rate below 3 per cent for the first time in a year. The last time the bank made that move, then finance minister Jim Flaherty was critical calling for “responsible lending” amid worries it would heat up an already precarious housing market.
New finance minister Joe Oliver has taken a more hands-off approach, saying he wouldn’t intervene in the recent rate sale.
It’s a decision Sun Life Global Investments Inc. chief investment officer Sadiq Adatia is calling a “mistake.”
“The old finance minister never would’ve allowed mortgage rates to go down,” Adatia told Bloomberg News. “He would’ve stepped up to do his part. The new one is more hands-off, and that’s actually a mistake.”
He said the housing market is poised for a correction, citing high consumer debt and an unemployment around 7 per cent.
“We need deleveraging to happen,” Adatia told Bloomberg. “You need rates to go up to slow down purchasing and for people to realize we’re in a rising interest rate environment. We’ll see a pullback in real estate of 10 to 15 per cent, but if we see rates stay low, we could see an even harder landing next year.”
In an interview with BNN in response to those comments, Oliver reiterated his position that he didn’t believe it was the role of government to set interest rates for mortgages. “The rates are low and coming down, but a very small amount,” Oliver told the Canadian business channel’s correspondent in New York.
Oliver also cited recent moves by Canada Mortgage and Housing Corp. (CMHC) to help stabilize the housing market. CMHC said last week it would stop offering mortgage insurance to new condo developers and for homes that cost more than $1 million. In April, the Crown corporation said it would stop insuring mortgages on second homes or to self-employed people who don’t have proper documents proving their income.
These measures are intended to help prevent the market from overheating. There’s an ongoing debate in Canada and in some international circles about whether the housing market here is headed for a nasty correction or a so-called “soft landing.”
The recent round of rate competition has fuelled the debate, but some credit unions claim they’ve been offering lower rates than the banks for months.
Dave Schurman, chief operating officer at FirstOntario, says his credit union is currently offering a 5-year fixed mortgage at 2.99 per cent and a 5-year variable at 2.89 per cent.
“The reason we are able to do it is because we’re not as profit driven as the banks are,” he said. “They could actually offer lower rates, but they choose not to because they’re all about their earnings and shareholder returns. That’s not what a credit union is about … We are in business to help our members.”
The Financial Post reported this week that DUCA Credit Union has a service to fund brokers with rates as low as 2.79 per cent on a five-year fixed rate loan.
The Post says some brokers are even eating into their own commission to buy down that rate to 2.69%, undercutting the banks’ rates.