Mortgage rates rise as virus and oil shock weigh on lenders
TORONTO Canadian mortgage rates are increasing again, as economic and profitability concerns associated with the novel coronavirus crisis and lower oil prices outweigh aggressive monetary stimulus from the Bank of Canada.
Lenders had dropped rates to historic lows this month as the central bank twice cut its key interest rate, ultimately lowering it to 0.75 per cent, one of the lowest levels on record. But starting last week, mortgage lenders across the country began hiking again, according to James Laird, co-founder of mortgage comparison website RateHub.ca and president of brokerage Can Wise Financial.
Best rates for a five-year, fixed-rate home loan have gone from around two to 2.5 per cent to between 2.5 per cent and three per cent, Laird said. One reason for the hikes is the recent economic uncertainty, he said. Forecasters have been adjusting their outlooks weekly, saying that a brutal, if short, recession is all but certain. The Conference Board of Canada warned Wednesday of the economy contracting by 1.1 per cent if travel restrictions and social distancing persist until the end of August.
“With Canadians losing their jobs, lenders are building a bit higher of a risk premium into their mortgage rate,” Laird said. “While this stuff is so fresh, and so uncertain, I think you can expect to see the upward pressure on mortgage rates until mortgage lenders feel like they have an understanding of what the new normal is going to be.”
The rise of mortgage rates, even from historic lows, could affect a housing market that has been an engine of economic growth for Canada. Housing has also been an area of concern for policy-makers, who up until recently were focused on restraining the impulse of households to own a home and take on debt to chase high prices. That concern has now been set aside to fight the crisis.
Orders for non-essential workers to stay home also could be pushing rates higher. Lenders have had to recently turn businesses into work-from-home operations because of the coronavirus, and a higher rate could slow down applications and allow them to catch up, Laird said.
“But even with the shift up, today’s rates are still very low,” Laird added.