The mortgage world is preparing for battle today, as rates continue to drop to record lows. The banks expected a war with each other, but not with the Department of Finance. Manulife Bank of Canada made and aggressive move and dropped their 5 year fixed rate to 2.89%, only to have it stopped after a phone call from Jim Flaherty.
Our Finance Minister is trying to put a halt to 'aggressive' and 'irresponsible' lending, and is concerned at Canadians' rising levels of debt. However, mortgage insiders find it funny that the low rates were prompted by him in the first place, in attempts to keep the housing market from overheating. He implemented some changes to the lending rules, which was a smart move on his behalf. He successfully filtered out buyers from those who should, and those who could. By tightening the rules, it was more difficult for buyers to qualify, which was his way of ensuring that people were not overspending, and that buyers were able to financially handle the burdens of having a mortgage.
Last year, when major banks aggressively dropped their rates, we found ourselves in the midst of a mortgage war - everyone was trying to offer the lower rates. The war was between the major banks, and oligopolized against independent mortgage brokers. At the time, lenders in the broker channel were unable to compete with what the bigger banks were doing. Now that the low rates have been offered for a while, the broker channel was able to offer the same rates. However, the Finance Minister can make calls to major banks like Manulife, but he cannot sit and call each independent mortgage broker with the same warnings.
Mortgage brokers felt the wrath last year, and are increasing the levels of competition. A mortgage broker that I have worked with is currently offering a 2.79% 5 year fixed rate. Mortgage brokers are sometimes allowed to waive portions of their commission in order to provide a lower rate - in other words, they buy down the rate. This is what they have to do in order to compete with the large banks, after last year's dominance.
On many levels, this kind of competition is not only expected, but it's healthy. As a Realtor, I want my clients to get the best deal, and the best product. I don't worry about my clients overspending, or taking on burdens that they can't financially handle. I'm very familiar with the lending process and criteria, and I am confident that it ensures people are in the right financial state to carry a mortgage. I think the Department of Finance is micro managing by making calls like this, and I think that the professionals know what they are doing, and moreover, the Canadian buyers know what they're doing.
