Institutional lenders, such as banks, are starting to collectively jump on the band wagon to increase mortgage interest rates. They are once again chanting their mantra about inflation concerns, higher costs of funds, and tighter interest spreads while at the same time restating the need for Canadians to reduce their personal debt levels. As a result of these actions, banks should make more money for their shareholders. I’m also sure that a few senior bankers might take home a larger performance bonus. In my opinion, the best interests of the mortgage consumer really have not been well served by these actions.
The Bank of Canada always attempts to make available an adequate supply of money to satisfy the market demand for residential mortgages. At the same time, Canada Mortgage and Housing Corporation (CMHC) works very hard to stimulate and educate our housing market while attempting to make residential home ownership opportunities available to a broad section of our society. Policies developed by the Minister of Finance are directly aimed at maintaining an inflation rate that will insure the long term economic value of home ownership. With the Canadian core inflation rate being reported now in the 1.5% range, the strategy of home ownership will certainly help to provide a strong and stable financial future for many Canadians. When our government considers the future, looking at potential options to deal with pension short falls and the growing cost of health care, it should be no mystery that a healthy and stable housing market is very important to our economy. Economic policy will be crafted in Ottawa with this in mind. With core inflation well in line and a very strong Canadian dollar, the need to raise interest rates might seem just a bit redundant.
Recent trends in the mortgage rules have not made the dream of home ownership easier. Combined with the credit industry’s trend toward centralized approval systems, most financial institution staff have not been given the opportunity to develop the knowledge or skills required to adjudicate or understand credit risk. I, for one, enjoyed a time in the not so distant past when a branch manager had interest rate discretion and the ability to grant mortgage approvals based on local market knowledge, experience, common sense and sometimes just a gut feeling. This style of lending may today seem old fashioned, but it was more in the borrower’s best interest.
Paul E. Croy