In this episode, Marcus hits the air remotely from Greece. The guys discuss how inflation and the interest rate environment are going to impact mortgage lenders and their lending policies towards Canadian borrowers. Last week, we all heard that inflation in Canada hit 7.7%. It’s impact on the economy is everywhere; at the pump, the grocery store, and at restaurants.
How is it impacting Canadian lenders, and how will it impact your next mortgage? What changes might we see going forward and what can you do to prepare? Some key takeaways include: First, lenders are concerned just like the rest of us. After the 2008 crisis, the maximum Loan to Value Canadians can borrrow against their property was dropped from 95% to 80%. When the economy struggles or faces uncertainty, changes are usually made.
We have not seen anything drastic yet, but if we continue down this current path, changes can’t be ruled out. A & B lenders tightening their HELOC requirements would not come as a huge surprise. We are already seeing some 2nd mortgage lenders not offer renewals to existing clients, which means that either they are not receiving payouts at their usual rate or they are now reconsidering a former qualified borrower’s credentials for this economic environment. Neither of these are great signs. Second, are we sure the BoC and Federal Reserve are completely independent of their respective Governments?
When Trump was in Power, he told Jerome Powell not to increase interest rates; Powell listened. The chair of the Federal Reserve is appointed by the President and the Governor of the Bank of Canada is appointed by the Prime Minister. Why would they bite the hands that feed them? Our Country leaders have the same agendas too; to stay in power. Trump wanted to keep the economy as strong as it could be leading up to his next election. As a result of these actions, a recession that was already looming pre-pandemic has just been delayed and maybe made worse.
It’s tough to have a Central Bank that is closely tied to its Country’s Government that is always thinking about re-election.
