Executive confident homeowners are absorbing the shock of increased monthly payments
While regulators have underscored the risk posed by mortgage renewals at higher rates in the next two years, a top bank executive has said his company’s borrowers are proving largely capable of absorbing the impact of higher payments.
Andrew Moor (pictured), president and chief executive officer at Equitable Bank parent EQB Inc., told Canadian Mortgage Professional that he had been encouraged by the ability of mortgage holders to stomach higher rates since the Bank of Canada began its series of rate hikes in 2022.
“We’ve seen 90% of our mortgage holders basically repriced since the Bank of Canada raised rates, and I’m quite pleased with how people are handling that high payment experience,” he said. “So I think that’s good news for the broker channel longer-term.”
The Office of the Superintendent of Financial Institutions (OSFI) recently indicated in its annual risk outlook that with 76% of outstanding mortgages set to come up for renewal by the end of 2026, Canadians renewing in that spell could be vulnerable to payment shock – particularly those whose mortgages were originated between 2020 and 2022.
Still, Moor said that while he was careful not to discount views on risk, borrowers appeared to be managing those higher costs so far, with other factors also counting in homeowners’ favour as they navigate the current landscape.
“Don’t forget salaries are going up also because of higher inflationary environments. Incomes are going up, [although] obviously that’s not true for everybody,” he said. “House prices are still arguably too high. So I’m cognizant of the risk – I think that we would grade that risk as slightly lower than others might perceive it to be.”
AML measures remain top of mind for financial institutions
Crucial for top lenders at present is compliance with anti-money-laundering (AML) requirements after a high-profile crackdown on TD Bank saw a substantial Fintrac (Financial Transactions and Reports Analysts Centre of Canada) fine, outlook downgrade by ratings agency Fitch, and OSFI order to overhaul its risk controls.
Moor said maintaining high standards on the AML front was essential to safeguarding and elevating the reputation of the broker channel.
“Making sure that we’re diligent about anti-money-laundering is really important,” he said. “It’s not easy sometimes because it does seem like we’re asking for documents that are not particularly relevant to that reality – but we need to think about keeping the reputation of the channel in good shape so that mortgage brokers continue to thrive in Canada. And I think we can do that.”
He said the likelihood of a Bank of Canada interest rate cut at some point this summer – potentially as early as Wednesday (June 5) – spelled good news for the broker community with a potential housing and mortgage market uptick to follow, while he also noted the “enormous opportunity” currently at play in the reverse mortgage space.
“I think it’s always good to have a broader product set for your customer base of things that you can do, even for the parents of your core customers,” he said.
Also important for EQB in 2024 has been focusing on its technology offerings to enhance the broker experience and help them build their business better, especially when it comes to automating bank statement submission and streamline interactions.
“It’s amazing when you think about how the channel’s gotten more sophisticated over the last decade or so,” Moor said. “One of the things we’re doing on our end is adding more technology so we can get back to brokers quicker with the right answers.”
EQB posts Q2 financial results
Moor was speaking shortly after EQB’s second-quarter financial results showed earnings per share (EPS) posted a 7% year-over-year boost and net income jumped by 20% to $317 million.
EQB said it has met its expectations for strong earnings growth in the second quarter of 2024, driven by growth in its decumulation lending and insured multi-unit residential lending.https://t.co/8NYGVdw3rw#breakingnews #financialresults
— Canadian Mortgage Professional Magazine (@CMPmagazine) May 30, 2024
Decumulation lending assets, including reverse mortgages and insurance lending, increased by 10% compared with the previous quarter and 57% year over year to $1.7 billion as the company’s single-family uninsured loan portfolio posted a slight increase to $19.9 billion.
EQB’s commercial banking loans under management, meanwhile, posted a $1.5 billion increase from Q1, rising to $32.7 billion.
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