TORONTO (Reuters) - Canadian banks have cut short a mortgage price war that had the lenders offering all-time low rates of 2.99 percent, as rising bond yields have boosted funding costs for the lenders.
Royal Bank of Canada was the first lender to raise rates, saying on Monday it will boost the rate on its cheapest four-year mortgage to 3.49 percent as of Thursday.
Toronto-Dominion Bank followed soon after, a move that was more surprising as TD had earlier pledged the deal would be available until Friday.
“It was generally cost of funds. Our long term rates have changed significantly since the offer was first introduced,” said Farhaneh Haque, TD’s director of mortgage advice.
U.S. 10-year Treasuries yielded 2.25 percent on Monday, up from 1.95 percent just three weeks ago. Canadian banks issue bonds to fund their mortgage loans.
Bank of Montreal touched off the battle in early March by cutting rates to rock-bottom levels, hoping to boost its lagging market share in the Canadian mortgage market. The bank had also offered the rate for a two-week window in January.
Generally known for their patience and conservatism, the price war has illustrated the degree to which the Canadian banks are willing to fight tooth-and-nail to gain mortgage growth and preserve market share in their key Canadian mortgage business.
Canada’s five biggest lenders have become among the strongest in the world after escaping the 2008 financial crisis in good shape, while global rivals took massive writedowns and required bailouts.
Despite their growing international stature, the banks still count the Canadian mortgage business as a core revenue stream, a source of steady profit that helps them fund acquisitions and pay for dividends.
With Canadian consumer debt at near record highs and the housing market perhaps nearing bubble territory, analysts have pegged 2012 as the year growth in the key loan segment may start to stagnate.
Reporting By Cameron French; Editing by Tim Dobbyn