Introduction
The Canadian banking industry is bracing itself for a potential "mortgage war" as interest rates continue to drop, making it increasingly difficult for lenders to retain their customers. The heads of Canada’s top banks expect many mortgage holders to be able to renew at lower rates over the next two years as the lenders compete for a larger share of the market.
Expectations from Top Bank CEOs
According to Royal Bank of Canada (RBC) CEO Dave McKay, 60% of RBC customers will renew their mortgages at lower rates in 2025. He emphasized that this does not imply that Canadians are not struggling with their payments now but rather that the risk of not being able to absorb higher mortgage payments has decreased.
"When we look at the cohorts that have higher payments, look at the overall payment shocks, it has decompressed significantly," McKay said at RBC Capital Markets’ Canadian Bank CEO Conference on Tuesday.
Toronto-Dominion Bank (TD) COO Raymond Chun also weighed in on the issue, stating that about a third of the mortgages coming up for renewal in 2025 and 2026 were also renewed in the past few years. He noted that TD has made several investments to boost its mortgage operations, including bringing in mortgage specialists at its branches across the country.
Factors Contributing to the Potential Mortgage War
Several factors could lead to a mortgage war:
- Renewal Rate: About 55% of all mortgages with Canadian banks are expected to be renewed in the next two fiscal years and 85% in the next three fiscal years.
- Market Share: Lenders are keen on improving their existing market share, which could lead to a competitive environment.
- Digital Process: Banks like CIBC have invested in digital processes such as mobile mortgage advisers to enhance customer experience.
Banks’ Strategies for Competing
To compete effectively in the upcoming renewal period:
- Expansion of Sales Force: RBC has expanded its sales force, which will help them aggressively market their products.
- Digital Process: TD has also invested in digital processes such as mobile mortgage advisers to enhance customer experience.
Conclusion
The Canadian banking industry is poised for a potential "mortgage war" as interest rates continue to drop and lenders compete for a larger share of the market. While some banks have strategies in place to retain their customers, others may need to adapt quickly to remain competitive.