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Interest rate hike

The Latest in Mortgage News: BoC likely to hike rates 75bps as inflation expectations grow

The odds of the Bank of Canada joining the “75-bps club” grew on Monday following the release of two Bank surveys that show inflation expectations on the rise.

The BoC’s Business Outlook Survey and its Canadian Survey of Consumer Expectations, both released Monday, show consumers and businesses alike expect high inflation to persist longer than previously thought.

Among businesses, the average expected wage increase climbed to a survey-high level. Nearly half of firms anticipate their wage increases will remain above pre-pandemic levels beyond the next 12 months.

Inflation expectations have also risen among consumers, along with concerns about rising prices for food, gas and rent, the BoC survey noted.

“Expectations for inflation one year and two years from now continued to increase in the second quarter of 2022 and reached a new survey high,” the Bank said, adding that Canadians believe prices are being driven higher by supply chain issues, the COVID pandemic and elevated government spending.

“Today’s CSCE report underscores the urgency for the BoC to bring down inflation,” noted senior TD economist Leslie Preston. “Canadians remain confident in the BoC’s ability to do so, however, long-term inflation expectations have risen, as have concerns that the BoC will have a hard time wrestling inflation back down to target. Therefore, the Q2 survey underscores the case for a 75 basis point rate hike at the upcoming rate-setting date next week.”

Ontario Teachers’ completes acquisition of HomeEquity Bank

Over nine months after the Ontario Teachers’ Pension Plan Board announced plans to purchase HOMEQ Corporation, the parent company of HomeEquity Bank, the deal has finally closed.

Ontario Teachers’ is the largest single-profession pension plan in Canada with over $227 billion in assets. It now takes control of HomeEquity Bank, the country’s leading bank offering reverse mortgage solutions with a portfolio of over $5.7 billion.

HomeEquity Bank completed more than $1 billion in reverse mortgage originations in 2021 alone, which was a 28% increase over 2020.

“We look forward to supporting HomeEquity Bank’s growth and believe in its incredible potential,” Jeff Markusson, Senior Managing Director, Financial Services, Private Capital at Ontario Teachers’, said in a statement. “They have impressive growth prospects, a compelling value proposition, a high-quality management team and share our vision of enhancing the lives of retired Canadians.”

Bond markets are currently pricing in an 84% chance of a 75-bps rate hike at the Bank’s July 13 meeting.

Three quarters of hopeful homeowners worried about rising rates

The rapid rise in interest rates seen over the past few months is causing concern for prospective homebuyers, according to a new poll.

Over three quarters (76%) of Canadians who are likely to buy a home in the next year say they’re worried that rising rates will impact how much home they can afford.

Meanwhile, one third of existing homeowners with a mortgage and 47% of renters say they’re confused about what rising mortgage rates mean for them, according to the Ipsos poll conducted for TD.

The survey noted that many younger Canadians never had to contend with a cycle of rising interest rates, which may explain some of the current confusion surrounding the impact of rising interest rates.

While a majority of respondents (74%) say they have a good grasp of how rising interest rates impact the affordability of home ownership, one quarter (26%) do not.

Some other findings from the survey include:

  • 48% of respondents say they are knowledgeable about how a home equity line of credit (HELOC) differs from a mortgage.
  • 67% say they are knowledgeable about how interest rates affect their ability to afford a home or renew their mortgage.
  • 74% of homeowners with a mortgage say they are knowledgeable about what happens if they sell their home before the end of the mortgage term.
  • 68% say they are knowledgeable about the difference between variable and fixed-rate mortgages.
  • 60% of first-time borrowers are knowledgeable about how the mortgage pre-approval process works.