Canada’s big banks are “mopping up market share” after Ottawa’s clampdown on the housing market “devastated” their competition and drove borrowing costs higher, according to one mortgage expert.
“It’s costing consumers hundreds of millions of dollars in extra interest over a five-year term,” Rob McLister of RateSpy.com told BNN in an email. “The stronger the oligopoly gets, the more consumers pay.”
Despite record household debt levels and the country’s largest real estate market abruptly turning cold, the third quarter for the banks has been a story of domestic lending strength.
CIBC, for its part, posted a 13 per cent jump in mortgage balances — with a heavy focus on Toronto and Vancouver. Scotiabank and BMO also topped expectations on Tuesday, thanks to Canadian loan growth.
As bankers take pride in their earning power, McLister says Ottawa’s clampdown on the housing market has “devastated bank competitors.”
A key source of funding for non-bank lenders is mortgage securitization — taking a portfolio of loans and having them insured. That portfolio can then be securitized and sold to investors as mortgage-backed bonds.
Ottawa made it considerably harder for the non-bank lenders last year, introducing much stricter criteria governing which loans are eligible for portfolio insurance.
Meantime, McLister says regulators also “drastically inflated insurance premiums.”
“This one-two punch has directly led to a 20 to 40 per cent plunge in residential originations at mortgage finance companies,” said McLister.
The big banks, which also bundle mortgages into bonds, have “numerous other funding sources.”
“So, they’re mopping up market share left and right,” said McLister.
When it comes to Canadian borrowers, it means higher rates.
Before the mortgage rules kicked in late last year, the best refinance rates from mortgage finance companies were 10 basis points below bank rates, said McLister.
“Today, they average 15 basis points above bank rates,” he said.
The new mortgage rules, in short, have removed “essential competition” from the market, said McLister.