TD Overhauls Mortgage Program

GLOBE AND MAIL


October 11, 2010
TD overhauls mortgage program as housing market slows
By STEVE LADURANTAYE
From Tuesday's Globe and Mail
Collateral mortgages designed to make borrowing easier, switching to rival lender more difficult
TD Bank TD-T is revamping its mortgage program, making it easier for homeowners to tap into their equity and harder for them to switch to another lender when their mortgages come up for renewal.

At the heart of the overhaul is a switch to collateral-charge mortgages, which are similar to lines of credit. The bank is encouraging employees to approve customers at 125 per cent of a home's actual value under certain circumstances, so the homeowner can easily borrow more money if their property increases in value.

Unlike traditional mortgages, the collateral mortgages are difficult to transfer from one lender to another, because they must be paid in full to be cancelled. That means if someone wants to change lenders, they need to renegotiate from scratch.

While other banks offer variations on the collateral mortgage, TD is the first to switch exclusively as of Oct. 18. Existing mortgages aren't affected by the change.

The bank's move comes as the housing market cools and fewer Canadians apply for mortgages. It's an attempt to entice buyers who expect to tap into rising values and don't plan to shop around for better rates in the future.

Competition for new business is intensifying; record low mortgage rates weren't enough to stop a slowdown of new buyers in the market during the summer. Sales fell by more than 30 per cent in Toronto and Vancouver, sending lenders scrambling to secure new business with innovative products and even lower rates.

Bank of Montreal currently offers the least expensive five-year fixed term at 3.59 per cent, although only its best applicants are likely to qualify at the special rate. Bank of Nova Scotia offers its customers the ability to split mortgages into two or three different components, each with its own terms.

TD said its new offering will ensure customers don't pay additional charges to tap into their rising equity, which it called "great news for both you and your customer" in an internal memo to its mortgage brokers.

"Customers may under many circumstances choose to register their collateral charge for more than the approved principal amount of the mortgage, up to 125 per cent of the property value," the e-mail stated. "This will allow them to borrow additional funds in the future without having to re-register ... eliminating any solicitor and in-house registration fees."

A homeowner can't simply call the bank and access the extra money they were approved for, however. The deal is dependent on values rising, and in each instance the bank said it would need to inspect the home.

"Part of our credit approval includes an assessment of the current value of the property - an appraisal of the property - to ensure the existing value can support the increased borrowing," said spokesperson Kelly Hechler.

The move has sparked anger among the country's independent mortgage brokers, who see the change as a direct shot at an industry that has been gaining market share from the big banks by competing fiercely on mortgage rates.

"Credit unions have always gone this route so it's not like they are reinventing the wheel," said Mike Averbach of Vancouver's Averbach Mortgages. "People literally have to cash out if they want to change over, so it's just another way for them to be handcuffed to the bank."

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The 2010 Housing Market! Will house prices fall? Hard to predict-

January 06, 2011
These are excerpts taken from The Toronto Star

Tony Wong

After three decades in the business, Toronto real estate broker Paul Swartz is still trying to figure out the market.

“I really don’t know what to tell clients. It’s just been about impossible to predict. We all know the ride is going to end, but nobody knows when.”

Swartz figured, like many analysts did, that 2010 would be slower because of a recovering economy. But despite the predictions of economic gloom, the Toronto existing home market rang out 2010 with the third best year for sales on record.

“I can’t tell you how many times I’ve gotten in trouble counseling first time buyers to wait because prices may fall. And then four years later they’re still going up.”

Make that 14 years. Prices have been appreciating since 1996, despite stock market crashes and global economic meltdowns along the way.

Some analysts have said the market is overvalued by as much as 25 per cent. But that hasn’t spooked buyers.

The Toronto Real Estate Board reported Thursday that 86,170 homes changed hands last year, down by only one per cent from 2009, which was the second best year recorded.

However, that number did not come close to the peak year of 2007, when 93,193 homes sold. But most realtors, expecting a far tougher year will likely say third place isn’t bad at all.

“Expectations of a depression were so dire that when we merely had a recession there was a kind of euphoria, people voted with their pocketbooks and with larger sized mortgages,” said Phil Soper, president and CEO of Royal LePage Real Estate Services.

After a pause in the third quarter as many had anticipated, the fourth quarter of the year was stronger than expected, buoyed by continuing low interest rates.

“The low cost of money has been the dominant driver in the valuation of property,” said Soper. “When people saw that rates remained low and that it wasn’t going to be a double dip recession that seemed to prompt a surge back into the market.”

The average selling price of a home in 2010 was $431,463, up by 9 per cent from 2009.

Two storey homes showed the strongest price appreciation, followed by condominiums and then bungalows, according to a separate report released Thursday by Royal LePage.

House price appreciation eased off in the second half of the year after a strong start, when figures were in the double digits.

“At the outset of 2010 we were experiencing annual rate of price growth at or near 20 per cent,” said Jason Mercer, TREB’s senior manager of market analysis. “This was the result of extremely tight market conditions coupled with the fact that we were comparing prices to the trough of the recession.”

Price appreciation declined rapidly in the second half of the year, but the strong start out of the gate meant that prices were firmly in positive territory in 2010.

The Toronto Real Estate Board still expects prices to go 5 per cent higher in 2011. But that is the optimistic end of most predictions. Royal LePage is forecasting a 1 per cent increase for 2011.

Soper said six weeks earlier his analysts would likely have forecast a flat or negative return for home price appreciation in 2011.

“We didn’t expect the fourth quarter to be as strong and we were expecting better economic news out of the U.S. But affordability ended up being much better than expected.”

The Bank of Canada paused in their hikes to the key overnight rate in October and December, leaving it at 1 per cent because of continuing economic weakness.

Affordability has improved as a result. The quarterly RBC affordability index shows that it now takes 56 per cent of pre-tax income to afford a detached home in Toronto. That’s down six percentage points, a significant drop from the second quarter.

Still, sales are expected to be down by 5.9 per cent next year, according to Royal LePage.

“Like 2010, we expect a strong start to the year because of continuing low interest rates, before tapering off at the second half,” said Soper.

The market is already slowing down. December had 21 per cent fewer sales than in 2009. Active listings are also up by 9 per cent. And it took 37 days to sell a home in December of 2010 than it did a year earlier.

Interest rates meanwhile, have nowhere to go but up. Analysts expect the hikes to continue as early as May of this year with the key rate doubling to 2 per cent by the end of 2011, which will further chill the market.

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