How are brokers advising their clients on rate hikes?

As a cooldown continues to grip Canada’s housing and mortgage markets, mortgage brokers are shifting their approach and finding new ways to bring in business after the bedlam of the last two years.

When the pandemic market boom was at its zenith, many brokers saw record volume on both the purchase and refinance sides as Canadians scrambled to capitalize on record-low interest rates and the ability, in many cases, to work from anywhere.

Those slashed rates have now risen considerably since the peak of housing market activity, and as a degree of normality begins to settle across Canada, home sales and prices are also beginning to moderate noticeably.

That’s not to say that a crash is on the way. Indeed, both prices and activity remain elevated by historical standards and compared with the housing market prior to the pandemic.

David Clarke (pictured top), owner at Nova Scotia-based Clarke Mortgage Group TMG, told Canadian Mortgage Professional that he had been navigating the current landscape by contacting as many people and clients as possible, taking a more proactive approach than had been required at various stages of the last two years.

“More or less what I’ve been doing for bringing in more leads is just trying to reach out to as many people as possible,” he said. “I find it’s always been more of a numbers game – the more people that know me, the more I’ve been able to help.”

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In Nova Scotia, the MLS composite benchmark price in June 2022 was up 27.2% over the same time last year, although at $417,300 it showed the province’s high affordability compared with other, more prohibitively priced markets.

Still, while a cooler market might be viewed as an opportunity for those buyers who were previously on the fringes to finally secure a property, Clarke said that rate hikes have played a significant role in reducing interest in purchasing across the board.

“In Nova Scotia, it seemed like prices might be tipping, but it hasn’t really happened too much with rates going up and the extra qualifying rate going with it,” he said. “It’s taking away from the buying power a bit.

“At least in Nova Scotia, our prices have stayed pretty steady, but then the buying power has gone down and people are getting [second thoughts]. So I don’t know if it’s been an opportunity for people that haven’t been able to get in.”

It’s no surprise that clients who have variable-rate mortgages are keeping a close eye on the Bank of Canada’s interest rate trajectory, with those mortgage holders’ payments having increased substantially in many cases since the beginning of the year.

Still, while many variable-rate customers may be mulling a switch to a fixed option, Clarke said most are still dissuaded from the prospect by a spread between the two that remains high.

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“Especially the ones that are in variable-rate mortgages are nervous, [and] they’re not quite sure what to do, whether or not they want to lock in,” he said. “But there’s such a stark difference between what the variable rate is and the fixed rate, so it’s hard for a client to take the leap to do a rate that’s 2% higher.”

Some clients who are thinking about locking in are “shellshocked” when informed what the fixed rate would be, Clarke said – although he makes sure to take them through the practical implications of variable rate hikes and what they actually mean, something that usually proves helpful.

“When we talk about it, I show them the numbers – what it actually means that the rate goes up by 0.5%,” he said. “It’s never as much as they think. So, the math of it usually makes it less scary than the concept.”

Indeed, Clarke said that considerable opportunity remains for the mortgage industry even despite the recent cooldown, with clients continuing to require funding – whether for purchases or refinancing.

“It doesn’t really matter what seems to happen – people still want to build a home or buy a home, or desire for renewal,” he said. “So the housing market never goes, and the mortgage market never goes away.”