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More than half of all mortgages at Canadian banks are scheduled to be renewed in the next two fiscal years
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Published on November 12, 2024 • Last updated 18 hours ago • 2 minutes reading time
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A “mortgage war” could be on the horizon as interest rates fall as more than half of all mortgages at Canadian banks are set to renew in the next two fiscal years, analysts at Royal Bank of Canada say.
After a period of “significant inflation,” consumers will have a “strong incentive” to shop around for the lowest mortgage available in the coming years, Darko Mihelic said in a note on Monday.
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“In today’s market, lower mortgage rates will make a significant difference for Canadians whose mortgages were taken out at historically low interest rates,” he said. “For a mortgage taken out in June 2020, a 50 basis point impact on the renewal rate would result in an annual savings of about $1,000.”
Mihelic expects mortgage brokers to “actively search” their databases and “proactively” approach borrowers.
The Bank of Canada has announced four interest rate cuts this year – with more expected – after keeping them high for an extended period to combat high inflation rates. The cuts are gradually shifting the focus from “mortgage payment shocks” to intense competition for renewals, analysts say.
About 55 percent of all mortgages at Canadian banks are expected to be renewed in the next two fiscal years and 85 percent in the next three years, Mihelic said.
Restrictions placed on Toronto-Dominion Bank's growth in the United States could make the landscape even more competitive, he said, as it could try to “compete aggressively” to meet its financial needs.
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“All Canadian banks view mortgages as an important anchor product and currently loan growth is very low across multiple loan categories,” Mihelic said. “The chance of stealing market share from a competitor is great.”
TD was fined about $3.1 billion by the U.S. Justice Department and other regulators last month and limited the expansion of its retail banking business because the company failed to monitor money laundering activities at its branches.
If a mortgage war breaks out, banks with large mortgage portfolios and strong deposit bases are more likely to maintain or expand their existing mortgage market share.
“Essentially, we believe Bank of Montreal, Bank of Nova Scotia and Canadian Imperial Bank of Commerce are most at risk of mortgage spread tightening and/or loss of customers,” Mihelic said.
“Particularly tough” competition could also lead to lower margins and lower net interest income for banks, he said.
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The delay in the development of open banking is likely to add to this competition, as banks may seek to lower interest rates on longer-term mortgages and lock in customers for longer renewal terms, he said.
Overall, Mihelic expects “waves of competition and tactics” that will likely evolve and change.
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