Banks' mortgage war may lure new homeowners

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Canadians are getting another chance to sign a mortgage at historically low rates, and for some it may be enough to push them to take a leap in the overheated real estate market.

On Thursday, Toronto-Dominion Bank, Royal Bank of Canada and Canadian Imperial Bank of Commerce trimmed the rate on four-year mortgages to 2.99 per cent – following Bank of Montreal's move on Wednesday to cut its five-year mortgage rate to the same level. BMO also chopped its 10-year rate to 3.99 per cent.

But these cuts to historically low levels, like similar moves in January, are limited-time offers that are prompting some potential home buyers to get off the fence and jump into the market.

Deanna Noyce, a real estate agent in Victoria, said the combination of cheap money and a good selection of housing inventory has emboldened her to consider buying a new home for her mother, who currently rents. The home would have to include a rentable apartment, to generate some revenue to lower the carrying costs, she said.

"There are some pretty good deals to be had, and a lower rate just makes it that much easier to take that risk," Ms. Noyce said. The current low mortgage rates will "give me that comfort for the period of time that I lock in."

Across the country in Halifax, consultant Mary-Louise Rossiter said the low rates are a factor in encouraging her to move ahead with a condo purchase. The fact that very low rates are available for five-year or 10-year mortgages, and not just on short terms, is a big bonus, she said.

Still, Ms. Rossiter said, the low rates "wouldn't make me purchase a house if I wasn't already intending to do so, or if I hadn't already had my financing in place. It wouldn't [prompt]me to just go out on the spur of the moment and buy a house."

Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty have been urging consumers to get a handle on their debts – the bulk of them in mortgages – and not allow low interest rates to entice them into borrowing more than they can handle.

The big banks' motivation in chopping rates is the looming spring market where real estate activity heats up dramatically, said Mark Kocaurek, chief of lending at ING Direct Canada, which has offered a 3.99-per-cent 10-year rate since January.

The largest banks get the bulk of their mortgage business at this time of year, and they fight hard for market share, he said. "[They are]likely looking to get a bit of momentum going into the spring market." Everyone is concerned that if the housing market cools a bit, the mortgage market might contract, "so the bigger players … may be a little bit more aggressive," Mr. Kocaurek said.

Mortgage growth in the banking sector is about 7 per cent right now, CIBC said Thursday. While that is still relatively strong, it is well back of the 10- to 12-per-cent growth rates banks were seeing only a few years ago, before the recession.

For some potential home buyers, house prices are still so high that a drop in rates isn't going to be enough to get them into the market.

Ron Sly, a communications co-ordinator with a non-profit organization in Toronto, said he and his partner would dearly love to move out of their tiny rental unit and buy their first home. The new rates "have renewed conversations between [us]about buying a house," he said, but "the prices in Toronto would still be out of reach without significantly more saving."

Consequently, Mr. Sly is considering moving out of the city and buying a house in a smaller community.

Dale Ripplinger, a real estate agent in Regina, said he thinks the impact of the special low rates will be muted, because buyers have gotten used to a prolonged period of low rates.

If rates had gone the other way – and gone up – it would have had a larger impact, he said, pushing people to jump into the market and lock in their still-low borrowing costs before they rise again.