Last week, CIBC forewarned that the number of mortgages it will grant in the back half of the year will be reduced by 50 per cent. The bank, which faced a serious number of cutbacks for mortgage applications during the first half of the year, believes that the new lending guidelines (including stress test for buyers) are making it harder for many homebuyers to initially qualify for a mortgage.
In an effort to cool the overheated housing market in Canada, the government introduced a set of new regulations in January. These included the requirement of lenders, who are taking out uninsured mortgages, to face a stress test to determine if they can make repayments at a rate 200 basis points above their contracted rate. CIBC’s Canadian’s Head of Small Business Banking, Christina Kramer, voiced her expectations during a conference call last week. “We expect there to be an origination decline in the 50 per cent range relative to the same period last year. A year ago, two-thirds of our revenue would be related to our mortgage business and today that’s about a quarter.”
Since the beginning of 2018, homes sales across the Greater Toronto Area (GTA) have been relatively low when compared to the same time last year. In April, home sales experienced a seven-year low, partially due to the new regulations introduced. “We’ve actually seen a very soft start with the spring market,” Kramer explained. “We don’t know whether that’s a bit of a pause in the market or consumers changing behaviour or waiting to see what happens.” The bank, which saw little growth in its mortgage book over the Q1 in 2018 and Q4 in 2017, predicts that there will be small growth for the rest of the year.
Despite slow growth in its mortgage portfolio, the bank’s second-quarter profit rose 26 per cent to $1.3 billion, when compared with the same quarter last year. “It is a slower market,” Kramer states. “We’re still seeing growth, year over year, it’s just not what it was last year.” She commented that the bank will become less reliant on real estate lending for revenues, and will focus on other avenues for growth.