Finance Minister Joe Oliver says he’s keeping a close eye on Canada’s housing market after the Bank of Montreal announced it was slashing its five-year fixed-rate mortgage to levels that pushed his predecessor Jim Flaherty to intervene last year.
The bank said Thursday it will offer a five-year rate of 2.99 per cent, down from 3.49 per cent.
“Our government has taken action in the past to reduce consumer indebtedness and the government’s exposure to the housing market,” Oliver said in a statement to CTV News on Thursday. “I will continue to monitor the market closely.”
Oliver noted that, in the past, Ottawa has taken measures to calm Canada’s hot housing market.
BMO, meanwhile, is defending its decision to slash its mortgage rate, saying it’s a “responsible choice” that can help Canadian homeowners.
“With a maximum amortization of 25 years, our mortgage offer is the responsible choice as it can help Canadians become mortgage-free faster,” Martin Nel, BMO’s vice-president of personal products, told CTV News in a statement.
When BMO offered the same rate in March 2013, it spurred warnings from Flaherty and he discouraged other big banks from following its lead.
Flaherty had been very vocal about his concerns that Canadians were too indebted, warning at one point that high household debt, largely driven by mortgages, posed the greatest risk to the Canadian economy.
Under his leadership, Ottawa slashed mortgage amortizations from 40 to 25 years, cut the ratio of debt that borrowers could carry, and stiffened the rules on insured mortgages four times in as many years.
Flaherty announced he was stepping down as finance minister last week, leaving a role he had held since the Conservatives came into power in 2006.
He was replaced by Joe Oliver.
In an emailed statement to The Canadian Press, BMO spokesperson Paul Deegan said the rate change is “solely” driven by falling yield bonds and the fact that spring is typically a busy home buying season.
Other Canadian banks have also recently cut their rates — TD Bank reduced its four-year fixed-rate mortgage to 2.97 per cent earlier this month, and Scotiabank lowered its rates across the board while issuing a four-year special rate of 2.94 per cent.
Mortgage broker Calum Ross told BNN on Thursday that BMO’s decision to drop its five-year fixed-rate doesn’t represent the real cost of bonds, noting that the five-year bond market has gone up in the last two weeks.
“That is what they price mortgages off of,” he said.
Ross said there’s a real concern that homebuyers who are qualifying for five-year mortgages today may not be able to afford their homes when rates rise, noting that mortgage rates have been “uncharacteristically low for an uncharacteristically long period of time.”
“I think it would be unrealistic of us to think rates would stay this low over the course of a five year-year period,” he said.
Source: Christina Commisso @ CTV News