Major Banks respond to Bank of Canada hike

lift prime lending rates from 2.45 per cent to 2.7 per cent. The increase would impact variable-rate mortgages, for which demand has grown as a result of the widening gap between them and fixed rates.
Data published by the Bank of Canada shows that since July last year, floating-rate deals have accounted for over half of new mortgages in the country. “We can expect more Canadians’ rates to go up and for their mortgage payment to be affected than in a typical rising rate environment,” James Laird, co-founder of mortgage rate comparison website Ratehub.ca., said, adding that that an increase of 25 basis points in prime rates is unlikely to have a significant impact of demand for housing. A jump of between 1 and 1.25 percentage points is more likely to bite he said.
Nevertheless, lending margins of banks, which have been under pressure as a result of low interest rates, are now expected to be boosted by higher mortgage rates. Back in March 2020, Canadian banks slashed their prime rates to a record low in response to the pandemic. This fuelled a housing boom, with the average house price hiking by a whopping 21 per cent in January from a year earlier. Meanwhile, growth in home loans have pushed household debt to 177 per cent of disposable income, making Canada’s population one of the 10 most indebted among the member-states of the Organization for Economic Co-operation and Development (OECD).