July 13, 2016 Best Mortgage Rates Update

The regulatory vice is beginning to squeeze – and our lending environment is about to get tougher!

July 13, 2016 Best Mortgage Rates Update:

A bunch of big news coming in over the last two weeks regarding Canada, and in particular, BC and Toronto's overheated housing markets.

Starting with the most recent, the Bank of Canada held the overnight lending rate steady today at 0.5%. The Bank noted uneven growth conditions across the country - pointing to lingering effects of low oil prices, and subsequent slowdown in the energy sector, compared with a housing boom in BC and Ontario. The bank downgraded the economic growth outlook for Canada, with multiple factors in play including decreased business investment, global geopolitical instability and uncertainty in the energy markets. 

A littler earlier this week the Provincial Government  (BC) stated they are ready to amend the Vancouver Charter, and possibly the Community Charter to allow municipal governments to tax vacant homes. With rental vacancies at all time lows and an estimated 10,000 homes sitting vacant in Vancouver alone, this seems to be a political home run. Although this may not be enough to curb the  commodotization of the housing market in Vancouver, at least the overall community will benefit somewhat through an increase in the tax base.

The benchmark rate, which is used to qualify borrowers for variable rate mortgages and mortgages with terms of under 5 years was quietly adjusted upwards last week from 4.64% to 4.74%. This is another signal that the lending environment is continuing to tighten in Canada. While this change will have minimal effect on a borrower's qualification, it may serve to accomplish the following:

-Push more borrowers into fixed rate products, even though most borrowers are already doing this.
-Act as political leverage to so the government can say it's been doing 'something' about housing issues.
-Act as a political warm up to further, and more drastic changes coming - for example a move to introduce the benchmark rate to 5 year fixed rate products.

Whatever the reason, the change has been made, and for now, the effect is has will be minimal.

Last bit of news here, was last week the Office of the Superintendent of Financial Institutions issued notice that it was going to be mandating stricter mortgage underwriting rules - which could possibly include a change to the qualifying rate for 5 year fixed rate products... aha! You see where we are going.

Ottawa’s financial regulator is tightening its expectations for due diligence, particularly when it comes to income verification – especially foreign income – and the use of collateral values to replace income verification.

OFSI warns, “Persistently low interest rates, record levels of household indebtedness, and rapid increases in house prices in certain areas of Canada (Greater Vancouver and Toronto), could generate significant loan losses if economic conditions deteriorate.”

The regulator is also telling lenders not to assess the ability to pay based on current, “exceptionally low” interest rates even if the borrower meets the 65% loan-to-value threshold.  OSFI says lenders should assume interest rates could be “significantly higher at renewal, and over the full mortgage amortization period.”

Policy makers and lenders are putting the squeeze on and I would say that it's high time that we have consistent underwriting standards across all financial institutions. As a mortgage broker, mono-line lenders, whom we use most often, already have some of the strictest underwriting guidelines around, so this announcement may help level the playing field and force the big banks into performing the same level of diligence that is required at the mono-line lender level. This is good news for clients of mortgage brokers.

Victoria's Real Estate Market:

As is somewhat expected, sales numbers are slowing into July. The week of July 11th saw approximately 26 sales/day which is down considerably from just a week prior of 39.1 sales/day.  It's summertime and despite the mixed weather we're having, most people would rather spend their time on Hornby Island or Rathtrevor Beach than spend time with their Realtors! I'll be looking for things to get steamed up again at the beginning of September.

Mortgage Rates:

Best fixed rates still range from 2.44-2.59%.

Bond yields are still struggling to breakout of the low .50%'s rates - this will serve to keep fixed rates low for some time.

Variable rates move slightly lower this week. Some full featured quick close variable rates are closing in on P-0.5% (2.25%) and some low basic rate products are digging into P-0.55% (2.15%) territory.

I've seen some improvement with the big banks like RBC - with clients showing me their pre-approvals. Still, they are generally all over the place, with renewal notices being unusually greedy. If you have a renewal notice, be sure to check out available rates elsewhere - a few hours spent with a mortgage broker could save you some serious cash.

Credit unions are still very much in the game... offering some of the best rates in the industry. Best credit union option for a 5-year fixed is currently is Coast Capital at 2.44% for high ratio deals, and 2.64% for conventional deals. There are several other credit unions sitting between 2.69% and 2.79%, which still beats the offerings of RBC and CIBC! Coast Capital is also offering a $1000 to be used in a registered investment product of your choice, and $500 towards legal and appraisal fees to first time homebuyers.

5 Year Fixed Rates5 Year Variable RatesHELOC
Quick Close Specials2.44% - Must Close within 45 Days - High Ratio Only P-0.45% (2.25%) 45 Day CloseP +0.5%
Best Standard Rates2.49% - High Ratio - 90 Day Close 2.54% -Conventional - 120 Day CloseP-0.45% (2.25%)P +0.5%
Low Rate Basic Products2.44% -Must Close in 120 Days - High Ratio Only 2.54% - Must Close in 90 Days - ConventionalP-0.55% (2.15%) - Must Close in 90 Days - High Ratio Only P-0.4% (2.3%) - Must Close in 90 Days - Conventionaln/a
Credit Unions2.64% - Conventional 2.49% - High RatioP-0.35% (2.35%)P +0.5%

* Low Rate Basic Products have great rates, but have restrictions that include high discharge penalties, inability to blend mortgage rates if you sell & buy, inability to leave lender during term, etc.

Other Rates:

Lender Prime2.7%
Bank of Canada Key Overnight Lending Rate0.5%
Next Bank of Canada Rate Update September 7, 2016
Benchmark Rate4.74%
5 Year Government of Canada Bond Yield (July 13, 2016)0.56%

Mike Grace is an independent full-time mortgage planner and industry insider located in Victoria, BC. If you are purchasing, refinancing or renewing your mortgage, contact Mike to obtain the best available rates and terms.