Mortgage Lender’s Response to Inflation and Interest Hike

Make Money Count

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.

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0:00 - Intro
1:15 - What does inflation of 7.7% mean to the average consumer?
5:37 - Inflation is currently scarier than a recession.
9:39 - A recession would create an opportunity for first time home buyers to enter the market, but will make it trickier to access home equity.
17:23 - Through the economic uncertainty, Cannect MIC returns have remained steady.
18:37 - This is a tough time to lock in to a 5-year fixed rate.
20:51 - Email question about accessing home equity without breaking the first mortgage.
25:17 - How banks might alter their lending amid this economic uncertainty.
30:48 - Cannect MIC has always been ready for real estate prices drops.
32:13 - 2nd mortgage lenders may not all be able to offer renewals now.
35:31 - Marcus’ laundry tips from Greece.
38:12 - Email question about banks changing lending policies.
44:49 - Are the Bank of Canada and Federal Reserve maybe too influenced by their respective federal Governments?
49:58 - The economy was already not looking great pre-pandemic.

#Inflation #InterestRates #Economics