An interest rate hike hinted at by the Bank of Canada to combat personal debt and an overheated housing market would hurt, not help, the economy, a leading broker told MortgageBrokerNews.ca.
“The economy can’t afford it, especially those with variable mortgages,” says the President and Principal Broker of MortgageLand David O’Gorman. “A rate hike now would increase the lines of credit.
“What is needed is a cap on credit cards. That has to be resolved. There has got be another way of getting a hold of this kind of debt.”
Bank of Canada Deputy Governor Timothy Lane told those gathered for a speech at Harvard University that the Canadian government “has intervened four times in the mortgage market to discourage excessive borrowing,” and that if “such targeted prudential measures turned out to be insufficient, monetary policy could also be used;” meaning an interest rate hike.
Lane had been speaking about the recent ratings cut by Moody’s Investors Services to six Canadian banks, due to concerns of rising personal debt. The central bank has described the hot housing market and rising personal debt among consumers “as the biggest domestic threat to the Canadian economy.”
O’Gorman pointed to TD Bank’s decision to raise rates on their lines of credit, twice, just recently, as part of the problem.
“Now it sits at prime plus 4 or 5,” he points out. “Instead, they (Ottawa) need to start dealing with credit card companies and lines of credit. Why do people need a $50,000 credit card? Companies are handing out these cards like peanuts.”
O’Gorman doesn’t see the tighter restrictions placed on lenders and mortgages in July of last year as contributing to the current lending difficulties.
“Those changes were necessary,” he says. “There were more than a few dogs (mortgages) being funded in the last few years. Now we’re going back to the early 1990s, with lenders doing proper due diligence and dotting the ‘i’s and crossing the ‘t’s.”