Big Six banks slash prime rates by half a point
Royal Bank of Canada, Bank of Nova Scotia, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Montreal and National Bank of Canada are slashing their prime lending rates 50 basis points to 2.95 per cent from 3.45 per cent in response to the plunge in the benchmark Bank of Canada interest rate.
It’s the second significant cut in less than two weeks by Canada’s big banks, after all of the Big Five cut by 50 basis points Mar. 5 in response to the central bank’s cut by the same margin.
The prime rate is a key benchmark that underpins variable-rate mortgages and lines of credit.
The move comes as Canada's housing market enters the traditional busy season, though there is speculation the COVID-19 pandemic could dampen activity.
John Pasalis, president of Toronto property brokerage Realosophy, said it's unlikely the lower prime rate will have a significant impact on activity, adding that he doubts lower rates will impact supply-demand dynamics amid virus outbreak fears.
"Those that are still driven to buy in this market are buying with or without a rate cut,” he said in an email to BNN Bloomberg. “And for those who are more anxious about the current environment, rates could turn negative and they're still not going to be out there looking for a home to buy."
At least one prominent mortgage market expert isn't convinced the banks will even pass along the full reduction to prospective homebuyers. In an email to BNN Bloomberg, RateSpy.com founder Rob McLister said that given the potential macroeconomic pressure the banks are facing, they may shrink the discount variable rate mortgages typically carry to the prime rate.
"What banks giveth with one hand they will taketh with the other by way of variable-rate discount reductions," he said "The weather forecast for banks is hurricane, tornado and tsunami all in the same month. They're getting sucker-punched by surging credit spreads, shrinking interest margins, rising loan loss reserves and increasing default risk (even though mortgage arrears are little changed yet.)"
Source: BNN Bloomberg
Thinking of buying or selling a property, or have a question regarding the real estate market? Fill out the form below and I'll get back to you promptly.