It’s not exactly a white flag, according to one Vancouver broker, but the move by some of the Big Five to slash discounts on their ARMs may be the first tentative sign this year’s rate wars are winding down as the banks meet their year-end targets.
“If the major banks are going to be reducing their discounts off of prime, it’s starting to make credit unions, mono-lines and other broker channel lenders – that generally haven’t followed suit – look really attractive to consumers,” said Darcy Doyle, a mortgage agent with The Mortgage Centre - Mortgage Evolution Yaletown. “And that allows brokers to be a lot more competitive today than they were yesterday. It seems that the rate wars are slowing and/or the banks have achieved their year-end targets.”
In the absence of a Central Bank move, RBC and BMO were the first to raise the floor on their variable rates this week, blaming higher borrowing costs for the decision to reduce their discounts on five-year variable closed mortgage by 20 basis points. Their move actually follows a TD decision to effectively raise its own ARM rates earlier this week.
RBC and BMO also increased special variable rate mortgages by 0.2 percentage points, to 2.55 per cent, or prime minus 0.45 percentage points.
The rate increases extend the broker channel some breathing room as it struggles to grow originations going into the fall/winter season. It also lends mortgage professionals another marketing tool in their efforts to win and retain clients, with most of their lenders refusing to follow the banks’ lead.
That’s good news for war-weary brokers.
Doyle and others suggest the movement may signal that the banks have, in fact, met their year-end targets, removing the impetus to continue offering deep discounts. It’s also possible that the banks are simply trying to usher more borrowers into fixed-rates, a more profitable product for all lenders.
Still, the cessation of hostilities doesn’t necessarily mean the banks have left the battle field altogether.
Despite significant bond yield declines in the last month, banks haven’t yet moved to pass on that savings to clients in the form of lower fixed rates. That doesn’t mean they’ve exited that end of the business, although their move to slash discounts on variables suggests any sense of urgency may have disappeared.
“Those that have met targets have priced themselves higher because they’re not necessarily looking for new mortgages or their budget for residential mortgages this year has been met and they don’t have the money,” said James Laird, a broker at True North Mortgages.