Mortgage demand continues to rise

RBC SAYS DEMAND UP AHEAD OF NEW RULES

Royal Bank of Canada saw an uptick in demand for mortgages this fall as borrowers look to secure loans before tougher rules — including a stress test — take effect in the new year, one of the bank’s executives says.

Neil McLaughlin, RBC’s head of personal and commercial banking, told analysts on its fourth-quarter earnings call there is a heightened awareness of the banking regulator’s revised mortgage underwriting guidelines, which is expected to reduce the maximum amount homebuyers who don’t need mortgage insurance will be able to borrow.

“We have seen a little bit of pull forward this fall,” McLaughlin told analysts on the call Wednesday. “As we talk to customers, some of them are surprisingly aware of what the stress test is about and have decided to move more quickly.”

McLaughlin’s comments came as RBC beat analyst expectations with a 12 per cent jump in its fourth-quarter net income to $2.84 billion, driven by double-digit year-over-year increases in personal and commercial banking, wealth management and capital markets. Its latest earnings for the three-month period ended Oct. 31 helped to cap off its fiscal year with a record $11.5 billion profit, up 10 per cent from fiscal 2016.

It also comes as the banking regulator in October finalized changes to its mortgage underwriting guidelines — moves aimed at reducing risk amid high household indebtedness and rising home prices, particularly in Toronto and Vancouver.

The revised guidelines, called B-20, require would-be homebuyers to prove they can still service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage points or the five-year benchmark rate published by the Bank of Canada. An existing stress test requires those with insured mortgages to qualify at the Bank of Canada benchmark five-year mortgage rate.