Brokers expect no surprises from BoC

Departing Bank of Canada head Mark Carney will deliver a speech today on the economy and interest rates, with brokers anticipating little in the way of surprises.

“I don’t see interest rates going up for the rest of year,” says Karyn Medeiros, with TMG The Mortgage Group. “I do hope they stay the same for 2013.”

Mark Carney’s tenure as BoC head ends June 1, and his speech is expected to set the tenor for the economy and the housing and lending markets, with an expected focus on rebuilding trust in the banks.

In a speech earlier this month Carney pointed to slower economic growth, specifically in the housing sector, stating that an interest rate hike was less imminent for 2013. So far, the central bank has kept its benchmark overnight lending rate at 1 per cent.

January and February have been slow months for Medeiros, as they have been for many, and her bread and butter remains the 5-year fixed -- something not directly affected by the BoC overnight.

“You can’t go wrong with the 2.89 per cent five-year fixed term,” she says, adding that she prefers the fixed-rate offer for her clients, as it offers stability.

“The only time I have clients opting out early is usually after the fourth year, so the savings over the four years outweighs the penalty of prepaying what remains on the fifth year,” she told

According to recent numbers from the CMHC’s base case scenario for 2013, the one-year mortgage rate is forecast to be within 3 to 4 per cent, while the five-year posted mortgage rate is anticipated to be within 5 to 5.75 per cent.

According to John Aiken, an analyst at Barclays, Canadian banks will probably underperform their U.S. peers, which are starting to see signs of retail banking tailwinds. Barclays cut its rating for Canadian Imperial Bank of Commerce to underweight from equal weight, and National Bank of Canada to equal weight from overweight, due to greater reliance on domestic retail banking. The firm raised the rating for Bank of Nova Scotia to overweight and for Royal Bank to equal weight from underweight.

The nation’s banks, ranked the world’s soundest by the World Economic Forum for five straight years, face a consumer-lending slowdown as Canadians struggle with record debt levels and a cooling housing market. The increase in the maximum amortization period for mortgages last July by Ottawa was one effort to rein in borrowing.

“It’s been a little tough with the regulations the way they are now,” says Medeiros, referring to the changes made to the maximum amortization period. “And yes, there is a lot of personal debt out there. I do a lot of private second mortgages at 85 per cent, as a lot of people just can’t do the 80 (per cent).”

The third quarter of 2012 saw household debt reach a record 165 per cent of disposable income.

The Bank of Canada’s December Financial System Review called the high level of household indebtedness and elevating housing prices the greatest domestic risk to the economy.
Carney is leaving to become head of the Bank of England.

More Mortgage Guide