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Top Stories Affecting the Canadian Mortgage Market Amid the COVID-19 Pandemic

Originally, we were going to write this week’s blog about the changes to the insured mortgage stress test coming into effect. As announced on February 19, the planned benchmark qualifying rate change was set to start on April 6.

However, the mortgage market — and the world — has changed a lot since then with the development of the novel coronavirus pandemic, COVID-19.

On March 13, 2020, the Minister of Finance announced that the insured mortgage stress test changes were put on hold indefinitely.

OSFI was also going to review potential changes to the uninsured mortgage stress test, but due to the ongoing COVID-19 stressors, they have put that on hold.

“…the benchmark rate as currently published by the Bank of Canada will remain in force until further notice,” OSFI stated.

Recent Canadian Mortgage Industry News

The stress test hold is not the only mortgage market issue that COVID-19 is affecting.

It is difficult to report on changes happening right now in the Canadian mortgage industry as the changes are coming so quickly.

That said, these are some of the top recent stories for the mortgage industry, as of April 7, 2020.

  1. Bank of Canada Interest Rate Cut to 0.25%

Since March 4, we have seen the Bank of Canada (BOC) interest rate cut three times — from 1.75% to 0.25% in a matter of weeks.

The most recent decrease happened on March 27, 2020, when the rate dropped 50 bps from 0.75% to 0.25%. The Bank Rate is correspondingly 0.5% and the deposit rate is 0.25%.

“The spread of COVID-19 is having serious consequences for Canadians and for the economy, as is the abrupt decline in world oil prices,” the BOC stated. “The pandemic-driven contraction has prompted decisive fiscal policy action in Canada to support individuals and businesses and to minimize any permanent damage to the structure of the economy.”

The BOC also announced two new programs:

  • The Commercial Paper Purchase Program, to alleviate strains in short-term funding markets.
  • The BOC will begin acquiring Government of Canada securities in the secondary market, starting with a minimum of $5 billion per week across the yield curve.

Read the full BOC announcement: https://www.bankofcanada.ca/2020/03/press-release-2020-03-27/

The next interest rate announcement is scheduled for April 15.

  1. Mortgage Deferral Requests are Rising

According to the Canadian Bankers Association (CBA), almost 500,000 requests for mortgage deferrals or to skip a payment are completed or in process.

“Taken together, the country’s six largest banks have deferred more than 10% of the mortgages in their portfolio,” the CBA stated.

The CBA reported that the average monthly mortgage payment of Canadian homeowners is $1,326.

This means that the cash flow freed up for Canadians from the deferrals completed to date is roughly $663 million per month, or nearly $2 billion per quarter. The CBA said that this number will increase over the coming weeks.

Read the full release: https://cba.ca/mortgage-deferrals-in-canada-reach-half-a-million

  1. Government Assistance Announced

The Government of Canada has announced an economic response plan for COVID-19. In the past several weeks, more than two million Canadians have applied for employment insurance (EI), as reported by Investment Executive.

Measures taken so far include:

  • The new Canadian Emergency Response Benefit (CERB)
  • Establishing a Business Credit Availability Program
  • Extending the Canadian income tax filing deadline
  • A Canadian emergency wage subsidy for qualifying businesses
  • Launching an insured mortgage purchase program
  • And more

See the full Economic Response Plan here: https://www.canada.ca/en/department-finance/economic-response-plan.html

  1. Mortgage Rates are Reportedly Rising

Dr. Sherry Cooper of DLC Canada Inc. wrote that banks and other lenders have increased mortgage rates for fixed and variable-rate loans.

“That’s not what happens typically when the Bank cuts its overnight rate,” Cooper wrote. “But these are extraordinary times.

Existing loans tied to prime rates may be seeing reductions in monthly payments, Cooper said, but new loans have increased mortgage rates.

“They slashed their prime rates but eliminated the discounts to prime for new variable-rate mortgage loans,” Cooper said.

Banks have also raised fixed-rate mortgage rates.

Read the full analysis from Dr. Cooper: https://dominionlending.ca/news/why-are-mortgage-rates-rising/

Resources for Mortgage Professionals 

Many organizations are publishing helpful resources during the COVID-19 pandemic. These can assist mortgage professionals in navigating the ongoing developments:

For the latest updates on the COVID-19 pandemic in Canada, please visit https://www.canada.ca/en/public-health/services/diseases/coronavirus-disease-covid-19.html.

Purview solutions are available remotely during the COVID-19 pandemic. For more information about our features, please visit www.purview.ca.

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