Canada’s largest banks raise prime rates to 3.2% after central bank hike

The Royal Bank of Canada (RBC) logo is seen outside a branch in Ottawa, Ontario, Canada, February 14, 2019. REUTERS/Chris Wattie

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TORONTO, April 13 (Reuters) – Canada’s biggest banks said on Wednesday they would raise their prime rate by 50 basis points to a two-year high of 3.2%, following a hike in key rates by the Bank of Canada, measures that could dampen the country’s hot real estate markets.

The country’s four largest banks – Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO), Bank of Nova Scotia (BNS.TO) and Bank of Montreal (BMO.TO) ) – said the higher prime rate, to which variable-rate mortgages are tied, will come into effect on Thursday.

Variable rate mortgages have grown in popularity as the spread between these and fixed rate mortgages has widened in recent months. They accounted for 55% of all mortgages, according to Bank of Canada data.

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The central bank on Wednesday raised its overnight rate by half a percentage point to 1%, the biggest single move in more than two decades, and said more hikes were to come. Read more

“Canadians with variable rate mortgages and home equity lines of credit (HELOCs) will feel an immediate impact,” said James Laird, co-founder of mortgage rate comparison site, in a statement sent by mail. electronic.

These measures follow increases in prime rates of 25 basis points last month. Read more

Burning housing markets in Canada, a growing source of concern for regulators and authorities, have already started to see some slowing in price growth due to affordability concerns and in anticipation of rate hikes . Read more

Fixed mortgage rates have also already risen in line with bond yields and are now close to 4% at Canada’s largest banks.

This means that Canada’s mortgage stress test floor, which sets the qualifying rate at the higher of 5.25% or 200 basis points above the rate paid by the borrower, has already moved to the latter for these loans.

A 1 percentage point increase in the stress test reduces affordability by about 10%, Laird said.

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Reporting by Nichola Saminather; Editing by Richard Chang

Our standards: The Thomson Reuters Trust Principles.

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