The central bank's rate hikes have proven to be a significant burden on Canadian consumers, market strategist says
The Bank of Canada needs to pay attention to the phenomenon of ultra-long mortgages as it essentially created this problem, according to Philip Petursson, chief investment strategist at IG Wealth Management.
“From the economic perspective, [an extended mortgage] is a burden on the consumer,” Petursson said in an interview with BNN Bloomberg.
“As [the BoC has been] raising interest rates, they’ve been raising the cost of mortgages over the last year. We’re seeing mortgage interest costs up 30% on a year-over-year basis; anyone renewing a five-year term today is paying 30% in interest costs.”
The trend is introducing significant risks to the already over-burdened fiscal environment, Petursson warned.
“That money has to come from somewhere – it’s coming out of consumption to their mortgages,” he said. “And it’s resulting in what we think is a stagflationary environment for Canada overall. So that’s the Bank of Canada’s concern.”
Strategies like extending mortgage amortizations and changing the insured mortgage qualification threshold will not be effective housing #affordability measures, says Romy Bowers, President & CEO of Canada Mortgage and Housing Corporation.https://t.co/OJvhwZzChk#mortgagenews
— Canadian Mortgage Professional Magazine (@CMPmagazine) June 20, 2023
Banking regulator vows to rein in extended mortgages
Earlier this week, Canada’s banking regulator announced that it will be working with lenders to address the growing frequency of ultra-long mortgages.
“I think both banks – financial institutions – and borrowers would be better off if the prevalence of this product was less, and we’re consulting and will have something out in October to discuss how we might address that, and put in place a little more regulatory oversight to make this product a little less prevalent,” said Peter Routledge, Superintendent of Financial Institutions.
Routledge said that his office is planning to release the first draft of its proposed guidelines – which are based on its public consultations on residential mortgages – by next month.
At present, Canadian banks have roughly $250 billion in mortgages with amortizations of 35 years or longer, Routledge said.
