* Manulife had offered 5-year loan at 2.89 pct
* Finance minister has warned banks to curb risky lending
* High debt levels have raised worries of housing crash
By Cameron French
TORONTO, March 19 Manulife Financial
said on Tuesday it is reversing a decision to cut Canadian
mortgage rates following pressure from Finance Minister Jim
Flaherty, who has raised concerns about record high consumer
Manulife, which is Canada's largest insurer but also offers
banking services such as mortgages, said this week it would
offer five-year loans at 2.89 percent, down from its previous
3.09 percent and lower than the posted rates of any of Canada's
top five banks.
But the company said on Tuesday it is pulling the low-rate
"After consulting with the Department of Finance, Manulife
Bank has withdrawn the promotional campaign and reverted to our
previous posted rate," Manulife spokesman Graeme Harris said in
an emailed statement.
Canada's Conservative government has tightened mortgage
lending rules several times in an effort to cool higher-risk
lending and reduce the chances of a U.S.-style housing market
Earlier this month, Flaherty warned the country's banks not
to engage in the kind of risky lending that led to the U.S.
housing crisis, after Bank of Montreal cut a popular mortgage
rate to a near-record low.
"The minister felt that it was intolerable that Manulife
would make this change and he instructed one of his staff to
call up and pass along the message that it would not be
tolerated," said a spokesman in Flaherty's office.
Canadian housing sales have slowed following the last round
of mortgage rule changes in July.
But prices have remained high as low interest rates have
allowed lenders to offer mortgages at historically low levels.
At the same time, Canadian household debt-to-income levels are
at a record high.
"(Flaherty) has made it very clear that he is concerned
about extremely low interest rates, and he wants to make sure
that the downward trend in housing (activity) continues at a
rate that is reasonable," said Benjamin Tal, senior economist at
CIBC World Markets.
While posted rates are the lowest widely advertised by
lenders, borrowers can often negotiate slightly lower rates
either through the banks or through brokers.
The moves to curb consumer lending, combined with the tight
competition on rates, has pinched revenue growth at Canada's
banks. This has put pressure on them to grow market share by
keep rates low.
Thomas Mulcair, leader of the New Democratic Party, the
biggest opposition party, and other opposition party leaders
criticized Flaherty's intervention, saying that Manulife was
simply responding to market pressures.
"This idea that you use the office of a minister to dictate
outside of law, outside of regulations, is absolutely
unacceptable in a free and democratic society."
The mortgage rate cuts come just ahead of the typically busy
spring real estate buying season, when warmer weather prompts
sellers to list houses they had been holding off the market
during the winter months.