Over the past six months, Canadian interest rate trends have been a hot topic. While rates have only increased once, going from 1% to 1.25% in January of 2018, stakeholders are watching closely to see when the Bank of Canada will make their next move.
Since November of 2017, six months ago, we have had announcements from the Bank of Canada (BOC) on December 6, January 17, March 7, and April 18. In December, the BOC held rates at 1%, only to increase them the following month in January. Interest rates stayed at 1.25% in March and April, but in both instances the BOC warned that more increases are likely ahead.
“…higher interest rates will be warranted over time, although some monetary policy accommodation will still be needed to keep inflation on target,” the BOC said in a statement.
On the heels of the BOC interest rate announcements comes a statistic from a CIBC Capital Markets report that suggests an estimated 47% of all existing mortgages will need to be refinanced in 2018. This is up from a 25% to 35% range in a typical year.
CIBC’s executive director, Ian Pollick, said that the increase in mortgage renewals is an “unintended consequence” of various regulatory changes over the past few years.
“Over the past two to three years, as home prices have risen unchecked, you’ve had people trying to get into the housing market unable to afford longer term mortgages and taken out short-term mortgages,” he said in an interview with the Canadian Press. “And in 2018, everything is falling on top of one another.”
Regulatory changes, such as the new mortgage stress test that was implemented on January 1 2018, are part of what has held the BOC back from increasing interest rates more in the first several months of 2018.
The next BOC interest rate announcement is scheduled for May 30, 2018. Economists are predicting the BOC will increase rates again before summer, meaning either at the May announcement or during the following announcement, scheduled for July 11.
If 47% of Canadians have their mortgages coming up for renewal, it could mean that they are subject to a higher rate than what they first negotiated at. But it all depends on the mortgage terms.
For instance, if a Canadian bought their home five years ago and chose a five-year term, interest rate hikes could mean payments are headed higher on renewal.
Existing mortgage holders won’t have to worry about the stress tests, unless they are renewing their mortgage with a different lender – then they will be subject.
Those seeking mortgage refinancing will also be subject to the stress test.
While Canadian interest rate trends and mortgage renewal statistics may present challenges, there is also plenty of opportunity.
- Gear marketing towards mortgage renewals. If nearly half of Canadian homeowners have a mortgage renewal coming up in the next year, this could be a bigger part of your business.
- Make it clear that interest rates will likely increase. No one knows exactly when, but most experts agree it’s highly likely there will be one or two more interest rate increases in 2018. If higher mortgage renewal rates are a concern, it may be to your clients’ benefits to act sooner rather than later.
- Stay in contact with mortgage lenders. If you have a client up for mortgage renewal, you can help them avoid the stress test by staying with the same mortgage lender. If that’s not an option, then you can assist them by knowing what other opportunities exist. If a client is considering mortgage refinancing, it will also be important to know what products lenders are offering as the stress test will most likely apply.
- If there is an influx of mortgage renewals, it could cause appraisal time to lag. Speed up the appraisal process by using Automated Valuation Models (AVMs) where possible.
Purview’s features can help you identify mortgage renewal and refinancing opportunities and ease the appraisal time performance. Our tools allow you to search by property value, sales history, and much more, and you can also access AVMs for properties of interest. Learn about all we have to offer by calling 1.855.787.8439.