Mortgage Wars Looming as Some Canadians Take Advantage of Lower Interest Rates

The heads of Canada’s top banks expect many mortgage holders to be able to renew at lower rates over the next two years as lenders compete for a larger share of the market.

A Renewal Bonanza on the Horizon

About 55% of all mortgages with Canadian banks are expected to be renewed in the next two fiscal years, and 85% in the next three fiscal years. These factors could lead to a mortgage war, RBC analysts said in a note in November, as Canadians hunt for lower rates and banks look to improve their existing market share.

Competing for Market Share

Royal Bank of Canada (RBC) chief executive Dave McKay said 60% of the bank’s customers will renew at lower rates in 2025. Of those who will renew at higher rates, he said 80% will meet the requirements of the industry’s mortgage payment stress test, which essentially means they can manage to make higher payments.

"We have been on defense for the last two years, absorbing HSBC," McKay said. "We’ve now absorbed HSBC. We are going on the offense with a significantly expanded sales force, which we haven’t had before, and, therefore, we’re super excited about the opportunity."

TD Bank has made several investments to boost its mortgage operations, including bringing in mortgage specialists at its branches across the country.

"I look forward to an active season," TD chief executive Victor Dodis said. "Our goal is to make sure that we are growing profitably and continue to take market share as we go forward."

Some analysts say the restrictions imposed on TD’s growth in the United States could make the landscape even more competitive because the bank may look to aggressively compete at home to meet its financial needs.

CIBC Confident of High Renewal Rate

Canadian Imperial Bank of Commerce (CIBC) chief executive Victor Dodis said his bank expects to renew about 200,000-plus mortgages in each of the next three years and is confident of a high renewal rate.

"We live in a very competitive market, the premier league of banking, as I see it," he said. "But we know that we can hold our own. Our goal is to grow more or less with the market."

Investments in Digital Processes

CIBC has also invested in digital processes such as mobile mortgage advisers.

"We have a process in place to reach out to our clients five months before renewal," Dodis said. "We want to make it easy for them to renew their mortgages, and we’re confident that we can do so at competitive rates."

A Mortgage War on the Horizon?

With so many mortgages up for renewal over the next two years, some analysts say a mortgage war is inevitable.

"There’s a big renewal strip coming through," McKay said. "We’ll compete hard for that. We have to, or we won’t be competitive in the market."

The mortgage war could lead to lower interest rates and more attractive terms for Canadian consumers. But it could also lead to increased competition among banks, which could drive up costs and make it harder for them to maintain their market share.

What Does This Mean for Consumers?

For consumers, this means that they will have a wide range of mortgage options available to them in the coming years. They may be able to negotiate better rates or terms with their current bank, or they may choose to switch to a different bank in search of lower interest rates.

As the market becomes more competitive, banks may also offer more attractive pre-approval offers and other incentives to attract new customers.

Conclusion

The renewal bonanza on the horizon is expected to lead to increased competition among banks as they vie for market share. With so many mortgages up for renewal over the next two years, consumers can expect a wide range of options and competitive rates. However, it’s also possible that the mortgage war could drive up costs and make it harder for banks to maintain their market share.

Sources:

• RBC analysts note in November
• TD Bank CEO Victor Dodis statement
• CIBC CEO Victor Dodis statement