Banks begin second round of interest raising
Royal Bank of Canada and Bank of Nova Scotia have hiked residential-mortgage rates for the second time in as many weeks, likely sparking another round of increases from other banks at the onset of what is expected to be one of the busiest home-buying seasons in recent memory.
As of Wednesday, RBC and Scotia's five-year closed fixed-rate home loans will carry an interest rate of 6.1 per cent, the highest since November. Those same mortgage products carried a rate of 5.25 per cent a little more than two weeks ago.
The 25 basis-point hike, announced by RBC and Scotia on Tuesday, comes fast on the heals of a 65-basis-point hike by the big banks late last month. It also comes as expectations rise that the Bank of Canada will raise its key interest rate earlier than previously thought.
Eric Lascelles, chief economics and rates strategist at Toronto-Dominion Bank's TD Securities unit, said investors are now factoring in a 50-per-cent probability that central bank governor Mark Carney will raise interest rates on June 1. Carney has pledged to keep the central bank's benchmark rate unchanged through June, "conditional" on the outlook for inflation.
The first round of mortgage-rate hikes kicked off on March 29, as RBC, TD Bank and Laurentian Bank announced the cost of their various mortgage offerings would rise between 40 and 60 basis points. RBC was the first to announce on that day as well.
A day later, Scotiabank, Canadian Imperial Bank of Commerce and National Bank of Canada did the same.
The banks say they are raising their rates because their own cost of funding is going up as investors demand higher yields.
Canada's real-estate market has been booming since the economy emerged from recession last year as consumers take advantage of some of the most favourable mortgage rates in decades.
Homebuyers are facing higher costs on other fronts as well, with more stringent mortgage lending rules set to take effect on April 19 and the looming introduction of the harmonized sales tax in Ontario and B.C.
Many homebuyers are expected to try to rush to make their purchases ahead of the changes to keep their costs down.
"Mortgages are tied to the bank's funding costs, which change from day to day," said Gillian McArdle, a spokesperson for RBC. "Our long-term funding costs have gone up considerably since mid-December and it is now necessary for us to increase . . . fixed-rate mortgages."
Canadian mortgage rates almost always move in near unison. But it was more than five hours after RBC announced its move Tuesday before it was matched by Scotiabank.