Finance Minister Jim Flaherty successfully pressured Manulife Bank of Canada to withdraw a record-low mortgage rate, The Globe and Mail reported Tuesday.
In the latest sign Canada’s major financial institutions are ready to ramp up a mortgage rate war, Manulife introduced a 2.89-per-cent rate for five-year, fixed-rate mortgages this week, RateSupermarket reported.
But a phone call from Flaherty apparently put the kibosh on those plans.
“After consulting with the Department of Finance, Manulife Bank has withdrawn the promotional campaign and reverted to our previous posted rate,” the company told the Globe in an emailed statement.
Flaherty has repeatedly raised concerns that house prices have grown too far and Canadians have become too indebted as a result of a long-booming housing market.
Flaherty felt the low rate was unacceptable, the Globe reported.
Manulife’s move followed the Bank of Montreal’s re-introduction earlier this month of a 2.99-per-cent rate, a move that spurred Flaherty to warn Canadian banks against the sort of irresponsible lending that led to the U.S. housing crisis.
Manulife is by no means the only mortgage lender eyeing rates below 3 per cent. According to the website RateHub, there were eight mortgage brokers offering rates below BMO’s 2.99 per cent rate as of Tuesday morning. But Manulife’s move had symbolic value, as it suggested Canada’s major financial institutions are pushing against Flaherty’s call for banks to stay away from aggressive rates.
Mortgage industry insiders are hinting that it was, ironically, Flaherty’s attempts to prevent overheating in the housing market that prompted mortgage lenders to cut rates.
As part of a package of mortgage lending reforms last June, Flaherty reduced the maximum length of a mortgage insured by the CMHC to 25 years from 30.
“It all comes down to good, old fashioned competition,” the RateSupermarket blog reports. “There are simply fewer qualified mortgage buyers these days -- many would-be buyers were sent back to the savings drawing board by those aforementioned CMHC rules.”
A Manulife spokesperson acknowledged the concerns surrounding Canadians’ record high debt loads, and the risk they pose to the economy.
“Manulife Bank agrees with the government that Canadians shouldn’t take on more debt than they can handle. However, part of the value proposition we offer to clients is to offer competitive rates,” the spokesperson told the Globe and Mail.
Even as lenders fight back against Flaherty’s campaign to rein in the housing market, the mortgage brokers’ industry is pushing to roll back the new mortgage rules.
The Canadian Association of Accredited Mortgage Professionals is pushing to allow home buyers to take 30-year insured mortgages once again, but only if they can get approval for a 25-year mortgage first.
So far, aggressive lending has kept house prices from declining in most markets, even as sales volumes have fallen steeply over the past half year.
Excluding Vancouver’s sluggish market, home prices across Canada rose 2.7 per cent year-on-year in February, even as total sales slumped 15.8 per cent.
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