The Details

Once again, the Bank of Canada (BoC) announced it is keeping its overnight lending rate, the targeted rate it charges when Canadian banks borrow, at .5%. Consequently, most banks and lending institutions are expected to keep their prime lending rate at 2.7%, where it has been since July of 2015. 

This is the 15th straight policy meeting where the BoC has elected to leave the overnight rate untouched, surprising nobody; most analysts are predicting the Bank to be sidelined well into 2018. In addition to the rate announcement, the associated press release was light on meaningful commentary (a more in-depth "Monetary Policy Report" is only released every second meeting). 

One development we were expecting to hear about concerns the recent run on deposits at Home Trust (stock ticker HCG on the TSX). Although Home Trust only represents around 1% of Canadian mortgage volume, this recent trouble has the potential to affect other lenders and their sources of funding if confidence in underwriting guidelines is shaken. The BoC kept quiet time around. However Stephen Poloz, the BoC Governor, did speak with The Globe and Mail the previous week and mentioned that he considered Home Trust's recent problems to be "idiosyncratic", not elaborating on how the Bank would react if lending conditions were to tighten across the industry. We suspect guidance and outlook around lending liquidity might occupy a paragraph or two in the next Monetary Policy Report. 

The next scheduled Bank of Canada announcement (and Monetary Policy Report) will take place on July 12th, 2017.  

Mortgage Market Implications

With Wednesday's announcement, bond yields remained mostly unchanged. That said, yields have fallen considerably from their recent peak in early March and there may be some downward pressure on fixed rates over the next few weeks, especially for the 5 year term. At the same time, variable rate discounts (that is, what discount a borrow can get off a prime rate) haven't changed much in the last several months. 

We at Mobile First Mortgage Architects continue to believe that the fixed/variable decision should be based on risk tolerance and a borrower's situation, with no current weighting or recommendation given to either. With declining sales volumes in some parts of the country, and new mortgage rules reducing mortgage affordability, it is realistic that all rates/terms will be under tremendous competitive pressure to stay low throughout the summer.  

If you'd like to review your individual situation, or where we think rates could be headed, please feel free to contact us.