Rising revenue, but dwindling profits. It’s the primary challenge facing Canadian mortgage lenders and brokers, and now new results suggest RBC is no exception.
The biggest of Canada’s big banks saw a 7 per cent rise in mortgage funded volume during the second quarter compared to a year earlier.
At the same time, its net interest margin fell a full five percentage points over the same period as the bank dropped rates on its 4-year fixed to return fire on BMO at the height of the rate wars in March.
The financials for the three months ending April 30, reveal the extent to which RBC and other mortgage lenders are now having to work harder in order to maintain current levels of profitability. That’s despite average origination numbers that have continued to climb, driven by double-digit growth in the GTA.
Brokers are increasingly finding themselves in the same boat as a growing number sacrifice commission in order to land deals in a fiercely competitive market.
There’s growing suggestion from some players that readjustment of commission structures may be inevitable for mono-lines and other smaller mortgage lenders grappling with tighter spreads. It is, however, a suggestion most brokers continue to reject.
“The model in its current state needs to be revised and there is a sense of urgency here,” John Bargis of Mortgage Edge told MortgageBrokerNews.ca. “Having said that, there needs to be careful study about the way going forward because in many ways what’s being considered is like a tax -- once implemented, it’s hard to reverse.”
Still, RBC and BMO, which trod out its own results Tuesday, are committed to actively growing their market share, with latter refusing to rule out another round of its 2.99 per cent interest rate on a five-year fixed.
The introduction of that rate would set off another battle in the rate wars, caution analysts, suggesting mono-lines would most likely take the brunt of any casualties.