Mort­gage rates rise as virus and oil shock weigh on lenders

Montreal Gazette - - FP MONTREAL - GE­OFF ZOCHODNE

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 Can­wise 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 work­from-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.

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