Lenders, especially banks, have been enjoying wider-than-normal spreads on fixed-rate mortgages (as measured by their discounted rates minus the 5-year government bond yield).
In fact, their spreads have probably been too wide, such that they’ve lost some competitiveness. That and more conservative lending guidelines are two reasons why banks gave up ground to competitors in 2014.
For the 12 months ending December 31, 2014, banks lost 2.43% in overall mortgage market share “mainly to credit unions and non-banks like First National,” says market analyst and McVay & Associates founder David McVay.
Below is how things shook out in 2014 for the largest federally regulated lenders (based on mortgages on balance sheet).
12 Mo Change
* Includes Tangerine, which Scotiabank owns
The above data is from McVay & Associates. It does not include non-OSFI regulated lenders (e.g., First National, Street Capital, credit unions, etc.). Nor does it include HELOCs. “Banks and trusts were asked by OSFI to classify HELOCs as personal loans,” says McVay.
Tangerine’s mortgage book plunged 27.6% in the 12 months ending Dec. 31, 2014. Its public-facing mortgage rates have been horrendous since rebranding from ING Direct. Scotia clearly appears to have shifted its mortgage origination efforts to the Scotiabank brand, leaving Tangerine primarily as a deposit aggregator.
BMO’s Low Rate Mortgage and sub-3% mortgage specials weren’t enough to keep its share growing. We’ve probably heard a dozen rumours in the last year of BMO re-entering the mortgage broker market, but they’ve all been unsubstantiated.
Over the last five years, CIBC’s overall market share has dropped almost 13%, due mainly to its broker channel exit. But it is leading big banks in retail mortgage growth, with a 14% first-quarter increase in CIBC-brand mortgage originations.
HSBC’s share has been even worse over five years, plunging almost 30%. HSBC pulled out of the broker channel in 2010.
It doesn’t take much analytic ability to see that banks pay a long-term price — in terms of market penetration — when they don’t originate through brokers. Without a doubt, they make some of that up through higher mortgage margins. But they also lose the ability to cross-sell and retain innumerable broker-generated clients.