Canadian economic growth in 2017 went up more than analysts predicted in the past quarter. And, as everyone knows from Economics 101, economic growth is the main lever that elevates and lowers inflation, which in turn dictates mortgage rates.
Between January and March 2017, Canada’s GDP expanded by 3.7 percent according to Statistics Canada. That’s at a rate of expansion beyond the predicted 2 percent growth at the end of 2016, and well beyond any other major economy currently.
That’s good news for Canada!
However, it may not be good news for mortgage rates. There are several factors that can indicate Canadian economic growth, but it’s the economic engine of a country that ultimately determines the direction of mortgage rates.
The argument goes that, when rates increase, houses become less affordable, meaning prices must fall or buyers will be priced out of the market. It’s simple common sense – when interest goes up, it gets more expensive to borrow.
Even with the reason rate increase, it pays for mortgage lenders to be prepared for further potential interest rate increases now, not when they happen. Being prepared means scheduling time to review portfolios to determine potential risks, such as identifying borrowers who may not be able to accommodate interest rate increases.
Any rate hike means Canadians pay more for financial products like lines of credit and variable-rate mortgages. In the long-run, this will make borrowing and carrying debt more expensive for the percentage of credit consumers who can’t absorb a rate increase.
Here are three tips to help lenders prepare for a potential rate increase, and help keep their customers’ accounts in good standing. Mortgage lenders can:
- Review their portfolio to find out which clients may be at risk if rates rise.
- Talk to those at-risk customers early. It’s good customer service to advise your clients on economic trends that may impact them, while helping protect the bottom line.
- Re-evaluate and modify underwriting standards to mitigate risk of defaults.
With a potential climate for interest rate increases, lenders need to be more diligent when they analyze property value, tenancy and borrower liquidity. Carefully reviewing these elements can help lenders easily calculate default risks early in the process.
Canada’s housing market is hot, with prices increasing month to month. Is there no end in sight? To mitigate risk, however, it never hurts to be more prudent in these uncertain times when it comes to reviewing existing loans for potential problems and being extra careful when considering new lending arrangements. Consider using an automated valuation model as part of your process to help validate information like a property’s value, home ownership, registered mortgages and more.
It’s easier to mitigate risk with access to the most current and accurate property-related data available online.
Purview For Lenders has you covered. Learn more today by visiting https://lenders.purview.ca/.