Bank of Montreal is courting potential first-time home buyers with an unconventional offer of up to $1,000 cash back on some new mortgages.
The promotion launches at a moment when the bank, which is Canada's fourth largest by assets, is keen to boost its share of the mortgage market. But it also appears tailored to help acquire new clients by promising some relief on the costs of a first mortgage, while requiring that the payments be deducted from a BMO chequing account.
Competition for new residential loans is poised to intensify as Canada's mortgage market shows signs of slowing growth. The pressure comes from several sources: Interest rates have risen from rock-bottom lows, consumers are heavily indebted, and the federal government has introduced stricter rules on new mortgages in an effort to cool overheating prices in Toronto and Vancouver.
BMO has acknowledged that its residential mortgage portfolio in Canada, which totalled $103.6-billion in Canada as of Oct. 31, 2016, trails when compared with some key competitors.
"We are smaller in the mortgage market relative to the size of the bank than our peers," said Bill Downe, BMO's chief executive officer, at a recent industry conference.
"We really have to concentrate on increasing the number of retail banking clients who consider BMO to be their primary bank," he added, as BMO's new deposits in its Canadian retail operations outpaced loan growth in its fiscal fourth quarter, rising by 8 per cent and 6 per cent, respectively.
Under the new promotion, first-time home buyers taking out insured mortgages with terms of at least four years are eligible for $500 cash on mortgages of less than $250,000, and $1,000 on larger loans. Once the mortgage is booked, the cash is credited to the customer's BMO chequing account.
In a statement, BMO called its new offer a "timely" companion to a new interest-free loan program British Columbia's provincial government launched to help new buyers cobble together down payments amid soaring housing prices. The federal government recently expanded stress tests aimed at ensuring a home buyer could still afford a mortgage at higher rates, making it harder for some prospective buyers to qualify.
"While the provincial government's offer is exclusive to B.C., our hope is to support all Canadians who come to us for this important milestone and investment," said Michael Bonner, BMO's senior vice-president and regional head for British Columbia and Yukon.