Bankers sick and tired of the rate wars

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Brokers exhausted by this latest battle in the rate wars will have time to nurse their wounds, with the big banks suggesting they’ve put down their weapons for now, if never really for good.

"Some of those rate wars have taken these returns down to unacceptable levels for our shareholders," David McKay, RBC’s country head said at a Montreal conference Thursday. “You hate doing business at 2.99 and making such low-to-negligible margins for five years."

Execs at the other Big Six are now seconding that, following Thursday’s collective move to end three weeks of discounting that brought fixed rates to their lowest levels in decades at the same time it brought profit margins to their knees.

As it did in January, BMO fired the first shot in March’s battle, forcing banks and mono-lines to counter its 2.99 per cent on a five-year fixed.

Most competitors refused to match the term on BMO’s no-frills product, instead pegging the rate to four-year fully-loaded mortgages.

McKay suggests that the compromise did little to insulate RBC and others from the effects of margin cutting on the bottom line.

For brokers, it challenged attempts to retain clients and keep them from retreating to the familiarity of a big bank name coupled with exceptionally low rates.

Still, many were able to gain some ground even with a heavily armed competitor behind every bush.

“We as brokers were better prepared this time to explain the shortcomings of the BMO product and to get them into other better product,” Trent Glover, with Dominion Lending Centres Team Kehler, told MortgageBrokerNews.ca. “We did have some clients who were questioning the rates they had received, but we explained the limitations of the (stripped-down) BMO mortgage, and they understood.”
 

  • Len Lane on 2012-03-31 3:37:26 AM

    Glad to hear they are sick of and so am I lets all go make some money.

  • Jim Henheffer on 2012-03-31 3:48:07 AM

    Interesting to hear. Especially since I came home yesterday to find a mail out from BMO on my counter notifying me and other homeowners that they have extended their 2.99% 5yr offer again until April 19....

  • Angela Wong-Liao, Invis Inc on 2012-03-31 4:56:01 AM

    I am glad that the banks are coming back to their senses as this is a short term gain long term pain business approach. The big banks are gaining market share in short term and suffering from profit margin loss. In my opinion, I think this business practice can only lead to future real estate melt down, similar to the financial crisis south of the border because a realistic pricing should be around 5% not 2.99%. The current real estate pricing is unrealistically high, some houses sold over 50% of asking price and people are rushing into the real estate market because of fear and the exceptionally low interest rates. The real estate pricing will subsequently going down when interest rates increases, the home buyers who have overpaid their houses plus the interest rates increases when their mortgages matures, these home owners will not be able to afford their mortgages and subsequently resulting in a major real estate bust similar to our partner south of the border.

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