With the latest round of falling fixed rates, the industry is now only 20 to 30 basis points away from an onslaught of clients looking to lock in, a seasoned broker told MortgageBrokerNews.ca.
“If chartered banks and broker channel lenders follow Scotiabank’s lead,” said Jesse Brun, a mortgage professional with Mortgage Intelligence in Moncton, “it means that the fixed rate on a five-year term will in many cases be only 75 to 80 basis points above the current variable. That’s already incentive enough for clients to move toward the fixed, but if that rate were to fall even by another 20 or 30 basis points, we would see a significant number of clients then prepared to lock in, whether on refis or new purchases.”
The assessment comes on the heels of Scotia’s announcement Tuesday that it will slash its posted benchmark five-year fixed by 20 bps, lowering it to 5.19 per cent. Also effective Wednesday, the bank made similar chops to its two-, three-, four- and 10- year posted fixed rates – anywhere from 6 to 20 bps. The next day, TD Canada Trust also lowered their five-year posted rate 15 bps to 5.24 per cent.
Its discounted two-year fixed will now sit at 2.49 per cent, less than 20 bps above its variable counterpart. That narrowing gap opens the door for a sea-change in client preferences, with a significant number of homebuyers abandoning their current preference for variable, said Brun.
That incentive may, in fact, grow. Bond yields are expected to dip even further over the next six months, says economists, pointing to increasing volatility on world markets and concerns about the possibility of a double-dip recession.
“I think there’s still more room for lenders to drop their fixed rates before hitting the floor,” Corey Romyn, an agent with Taurus Mortgages, told MortgageBrokerNews.ca earlier this summer. “We’ve seen that in the last few years, especially when volumes are down for most lenders, as they are this year.”
Still those same economic concerns responsible for lowering fixed rates may limit any potential boon in new business for brokers, say industry veterans. They point to growing concerns about job security and their negative impact on consumer appetite for new home purchases.
