TORONTO (Reuters) - Canada’s big banks, which entered a mini-price war on mortgages last month, are now raising their rates ahead of schedule, due to higher costs that make the cheap mortgages more expensive to fund.
Royal Bank of Canada (RY.TO) and Toronto-Dominion Bank (TD.TO), which had offered a record-low rate of 2.99 percent on a four-year mortgage, said on Wednesday they were cancelling the offer, well ahead of the original expiry date of February 29th.
TD’s lowest rate on a four-year mortgage is now 3.39 percent, it said.
The moves underscore how nervous the banks have become about narrow margins in their consumer lending portfolios. Bond yields have begun to inch higher from historically low levels in December. Banks typically issue bonds to fund their mortgage lending.
“Our long term funding costs have gone up considerably due to global economic concerns, and while we have held off in passing on these rate changes to our clients, it is now necessary for us to increase this mortgage rate,” said RBC spokesman Matt Gierasimczuk.
Analysts say the banks will struggle to increase earnings this year due to low rates, which narrow the margins on loans.
While they can partially compensate for that by raising lending volumes, the Bank of Canada and the federal Finance Department have been warning Canadians to lower their already-high debt levels.
Bank of Montreal (BMO.TO) kicked off the price war when it announced a two-week offer of a record-low 2.99 percent 5-year mortgage in mid-January.
The move to cut rates drew criticism as it came just days after bank CEOs had warned of the possibility of a housing bubble in certain regions across the country.
Reporting by Cameron French; editing by Rob Wilson