The race to offer the country’s lowest mortgage rate has some lenders looking beyond the numbers.
While several major banks have already rolled out new mortgage rate specials, at least two of the country’s biggest lenders are hoping to shift the focus instead.
With the critical spring housing market in full swing, Bank of Montreal, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce are all offering rate specials that are among the lowest ever advertised. Others, however, are looking to turn the message away from rates.
Royal Bank of Canada, the country’s largest mortgage lender, is launching a campaign this week that promises employee pricing on all of its mortgage products.
The spring promotion, which runs until July 3, takes a page out of the playbook of the auto industry, which has long lured consumers with the chance to buy a car for the same price as employees.
At 2.69 per cent, RBC’s current employee rate for a five-year fixed mortgage would make it the lowest among the rates advertised by any major bank. But the bank isn’t actually planning to advertise the particular number.
“The whole of the industry seems to focus on one thing and one thing only, which is the rate,” said Sean Amato-Gauci, RBC’s senior vice-president of home equity financing. “We all know there is so much more involved in the home-buying decision and taking on such a large debt. To keep the conversation focused on just the rate does a disservice to consumers.”
Rather than advertise a rate special, Bank of Nova Scotia is launching its spring mortgage campaign with a consumer poll showing that while 84 per cent of mortgage shoppers care about the rate they’re getting, a majority also care about other mortgage features, such as the ability to break their mortgage early or make extra payments.
Despite pressure from competitors, the bank has no plans to come out with an attractive new rate in time for the spring housing rush.
“Most people who have a rate special seem to have it on a particular term or a particular product,” said David Stafford, Scotiabank’s managing director of real estate secured lending. “We’ve found when we’ve done it in the past, it tends to cause a rush to a particular term. What we’re really trying to do is encourage our customers to have a fulsome discussion about what their needs are.”
The shift in strategy at the two banks reflects the new reality of the mortgage business.
With interest rates at record lows and banks increasingly battling with credit unions and other non-bank lenders for market share, lenders are having a difficult time standing out from the pack.
Bank of Montreal shocked the market and raised the ire of federal officials in 2012 when it came out with a 2.99-per-cent rate special. This year, many industry players complained that BMO’s 2.79-per-cent spring special reflected a rate that most lenders had been quietly offering for months.
Today, banks can offer specials that shave only a few basis points off a competitor’s product. Some are now turning their messages toward the other services that only banks can offer, such as attractive rates on deposit accounts and credit cards for consumers who also sign up for a mortgage.
“Money is on sale right now,” Mr. Stafford said. “Take a mortgage at 2.74 per cent and compare it to a mortgage at 2.69 per cent and you’re talking on average a savings of about $6-7 a month. So relatively speaking, the savings are already in the market.”
In the era of low rates and fierce competition among mortgage providers, banks are now finding diminishing returns from spending marketing budgets on campaigns aimed at offering the lowest rate.
“Last year, I recall one of our competitors launched a rate and literally the next day in the same newspaper another competitor launched a rate one basis point lower. The next day another competitor launched another basis point lower,” RBC’s Mr. Amato-Gauci said. “Is that truly differentiated advertising? Is it advertising that is going to drive more customers to you? In our experience, we’ve found that it doesn’t.”
(Editor's note: A previous version of this story referred to David Stafford as Scotiabank’s vice-president of home financing solutions. He is Scotiabank’s managing director of real estate secured lending.)