The Latest in Mortgage News: Recent hikes are “painful” for variable-rate mortgage borrowers, says BoC

Homebuyers with a variable mortgage rate are facing a “painful” adjustment as interest rates continue to rise, the Bank of Canada’s Senior Deputy Governor Carolyn Rogers said this week.

She made the comment during a speech in Ottawa where she added Canada’s financial system will be able to weather this “period of stress.”

She touched on how the highest inflation in decades has made it necessary for not only the Bank of Canada, but central banks around the world to react quickly by tightening monetary policy.

“This tightening cycle…has been particularly steep,” she said. “We have moved interest rates up quickly because history tells us that front-loading rate increases gives us the best chance to cool the economy quickly and keep inflation expectations anchored. This avoids the prospect of larger increases down the road.”

Recent homebuyers who opted for a floating-rate mortgage are currently feeling the brunt of the interest rate hikes. “Borrowers with a variable-rate mortgage and fixed payments may face higher payments if they hit their “trigger rate”—the rate at which their monthly mortgage payment is covering only the interest and not paying down the principal,” Rogers noted.

“This is not a large share of households, but it is larger than it would have been based on historical trends,” she said, adding that those with fixed-rate mortgages will also see an increase in their payments at renewal time.

“The bottom line is that mortgage costs for some Canadians have already increased, and they will likely increase for others in time, making homeownership more expensive,” she said.

First National co-founder offers to buy Home Capital

Home Capital Group announced this week that it entered into a definitive agreement to be acquired by Smith Financial Corporation, a company controlled by billionaire Stephen Smith, co-founder of First National Financial.

Under the terms of the deal, which isn’t expected to close until mid-2023, Smith Financial Corporation would acquire Hoem Capital at a purchase price of $44 per share, valuing the company at $1.7 billion. That’s a roughly 72% premium to the volume-weighted average trading price over the past 20 days.

As of the third quarter, Home has seen originations fall roughly 23% year-over-year due to the overall slowdown in the real estate market, though it still managed to grow its loans under administration by 15% to $26.8 billion.

“This Transaction represents tangible recognition of the value and strength of our organization,” Home’s President and CEO, Yousry Bissada, said in a statement. “We look forward to this exciting new chapter for Home Capital.”

Stephen Smith called Home Capital a “strategic asset” thanks to its national presence, 36-year history and “trusted positions as a lender and deposit-taker.”

“Having followed the development of the business for three decades, I can attest to Home Capital’s strong partnerships with mortgage brokers and great customer relationships,” Smith said in a statement. “I’m also impressed with the direction the company has taken to build quality assets and enduring advantages in its chosen industry segments. I look forward to owning another business with a bright future.”

The agreement allows Home to “shop” the market for a more suitable buyer up until December 30, 2022. The deal is also subject to regulatory approvals under the Bank Act, the Trust and Loan Companies Act and the Competition Act.

Ontario hikes foreign buyer tax to 25%

The government of Ontario recently announced a hike in its foreign buyer tax from 20% to 25%, making it the jurisdiction with the highest such tax in the country.

Officially known as the Non-Resident Speculation Tax, the tax is applied to the purchase of homes by individuals who are not citizens or permanent residents of Canada, as well as foreign corporations and taxable trustees.

As part of the government’s latest announcement, the tax will also now be applied province-wide, whereas previously it only applied to the purchase of homes in the Golden Horseshoe.

“This increase will strengthen efforts to deter non-resident investors from speculating on the province’s housing market and help make home ownership more attainable for Ontario residents,” reads the government release. “For many years, there have been concerns that foreign real-estate speculation is an important factor driving up the cost of housing in Ontario.”

No name change for CMHC

Back in the fall of 2020, the Canada Mortgage and Housing Corporation announced it was actively undergoing a rebranding to better reflect its mandate.

That included exploring other potential names for the government agency, including “Housing Canada.”

But under the new leadership of CEO Romy Bowers, the agency confirmed it is no longer exploring a name change.

“In light of all the housing priorities we are delivering on for Canadians on behalf of the Government of Canada, as well as other CMHC initiatives, we have no current plans to revisit the branding,” a CMHC spokesperson told CMT.

New MPC board announced

Mortgage Professionals Canada recently confirmed the election of its new 2022-2023 board of directors, led by Chair Veronica Love, Senior Vice-President of Corporate Development at TMG The Mortgage Group.

“I am thrilled to work with the passionate professionals who stepped up to volunteer their time for their association and were voted in by their peers,” Love told CMT.

“We have a dedicated board heading into 2023 and our goal is to ensure all members have the support they need in training, business development and in our efforts to be the voice of mortgages to Canadian homeowners and our government, which sets mortgage rules,” she added.

The following is the complete list of MPC’s new board:

Executive

  • Veronica Love, Chair
  • Joe Jacobs, Vice Chair
  • Joe Pinheiro, Past Chair
  • Eric Chamelot, Treasurer
  • Frances Hinojosa, Secretary
  • Lauren van den Berg, President and CEO

Regional directors

  • Grant Armstrong, Ontario
  • Denis Brunet, Manitoba
  • Barbara Cook, Ontario
  • Catherine Ellis, British Columbia / Yukon
  • Doug Farmer, Alberta / NWT
  • Rob Jennings, Atlantic Canada
  • Bud Jorgenson, Saskatchewan
  • Erica Ma, British Columbia / Yukon
  • Kuljit Singh, Ontario
  • Maxime Stencer, Quebec

Consumer sentiment falls to near-record low

Sentiment among Canadian consumers recently fell to one of its worst levels since the height of COVID, according to the Bloomberg Nanos Canadian Confidence Index.

The index has fallen for more than nine straight weeks, reaching a level of 42.68, its lowest level since July of this year. At its low point during the pandemic, the index reached 37.08, while its average since 2008 has been 56.30.

Bloomberg noted that 47% of respondents said their finances had worsened over the past year. “That’s the highest-ever reading for this question in surveys going back to 2008, surpassing the depths of the pandemic and the global financial crisis,” Bloomberg noted.

“Sentiment around real estate has been sliding since March, when interest rates began to rise; 40% of Canadians currently anticipate falling home prices over the next six months,” it added.

The results are based on a weekly poll of 250 Canadians (and compiled into a four-week rolling average) to measure financial health and economic expectations.

Source: Bloomberg-Nanos

Featured image by Justin Tang/Bloomberg via Getty Images

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