A HSBC bank branch in downtown Toronto on June 13, 2017. Since 2016, HSBC Bank Canada has perennially and openly undercut big banks on mortgage pricing.CHRIS HELGREN/Reuters
Canada’s six megabanks dominate our mortgage market. That’s why any challenger that compels them be more competitive is a win for borrowers.
Since 2016, HSBC Bank Canada has been just such a challenger, perennially and openly undercutting big banks on mortgage pricing. But now, HSBC Bank Canada confirms it’s looking at a potential sale. And that could leave consumers paying more.
What HSBC has meant for competition
For six years, HSBC has advertised rates that are commonly 20 basis points or more below the so-called “special offer” rates promoted by big banks.
As we speak, for example, HSBC features the lowest uninsured five-year fixed rate (5.14 per cent) and lowest five-year variable rate (4.94 per cent) of any national lender.
The closest advertised rates from a big bank are 20 basis points higher on the five-year fixed, and 26 basis points higher on the variable. (There are 100 basis points, or bps, in a percentage point.) Paying such a premium could cost up to $5,376 more on a five-year $430,000 mortgage, the average first-time buyer’s mortgage amount, according to Equifax Canada.
Of course, big banks do negotiate. And HSBC performs a vital function there too, giving borrowers ammunition when requesting a rate match from their bank of choice. And big banks commonly match or get close to HSBC’s rates, depending on how qualified you are – both as a borrower and a negotiator.
If HSBC’s leading rates no longer exist, consumers lose this key bargaining chip.
How things could play out
HSBC Canada will attract a lot of interest from potential acquirers, National Bank analyst Gabriel Dechaine said in a report on Tuesday. It is “hard to argue” against Royal Bank of Canada as the leading candidate to make this acquisition, he added.
That prompts a question. If someone such as RBC, which advertises the highest five-year mortgage rates of the Big Six, turned HSBC Canada into a new brand, do you think it would maintain such bank-beating rates? Not sure I’d hold my breath on that one.
Bank of Nova Scotia did something similar when it bought ING Direct in 2012 and turned it into online discount bank, Tangerine. But after the buyout, Tangerine’s rates were not as good as ING Direct’s.
We’ll have to wait and see how this plays out in the weeks ahead. “The review is at an early stage and no decisions have been made,” an HSBC spokesperson said Tuesday in an e-mail to The Globe and Mail. Given this news leak, however, a decision will likely be announced soon, so as not to leave HSBC customers and partners hanging.
Mortgage rates won’t let up
Say bye-bye to uninsured fixed rates under 5 per cent, at least among national lenders. As of this week, they’re officially a thing of the past for one-year to 10-year terms.
You can still grab rates in the mid-to-high 4 per cent range on short-term uninsured fixed rates in British Columbia (Community Savings Credit Union, for example), Manitoba (most big credit unions), and Saskatchewan (Affinity Credit Union) but elsewhere you’re looking at more than 5 per cent.
If you need an insured mortgage, you can still find fixed rates in the mid-4 per cent range on rate comparison websites. You’ll also see insured adjustable-rates as low as 4.20 per cent from online brokers.
Looking ahead
If implied future rates in the bond market are any indication, floating rates are headed another 75 bps higher by next quarter. At that point, however, it’s less likely – mathematically speaking – that we’ll maintain the high inflation levels we’ve seen. That’s because the inflation rate in the prior year’s period was accelerating so fast by comparison.
That means, barring another global shock (Vladimir Putin going nuclear, a new pandemic outbreak, etc.), inflation could drop meaningfully by the end of the first quarter of 2023. Such progress would then likely reflect in lower bond yields – and hence lower fixed rates – by the spring housing market.
If you’re pining for lower rates, hope may be on the horizon.
Rates shown in the accompanying table are as of Wednesday, from providers that advertise rates online and lend in at least nine provinces. Insured rates apply to those buying with less than a 20 per cent down payment, or those switching a pre-existing insured mortgage to a new lender. Uninsured rates apply to refinances and purchases over $1-million and may include applicable lender rate premiums. For providers whose rates vary by province, their highest rate is shown.
Robert McLister is an interest rate analyst, mortgage strategist and editor of MortgageLogic.news.