BMO’s low mortgage rate might not make for much of a mortgage war after all
Tuesday, March 5th, 2013Investors rushing to BMO’s stock following its new mortgage offer might want to think twice.
BMO brought back its 2.99% five-year fixed-rate mortgage on Friday as concerns of a cooling housing market has banks becoming increasingly competitive about roping in new customers. Last year, BMO set off a price war with its competitors by offering its 2.99% rate — a record low for one of the major banks on a five-year fixed rate.
“The market will once again begin talking about pricing pressure in the domestic mortgage market,” said John Aiken, an analyst at Barclays Capital.
Last month, Canada Mortgage and Housing Corp. said new housing construction is expected to be lower this year due to moderate economic and employment growth in the second half of 2012. The Teranet-National Bank index of Canadian housing prices in January continued to show the effects of a cooling trend that has hovered over the real estate market for more than a year.
.So it’s no surprise BMO introduced the 2.99% rate, and it’s likely that other banks will follow in its footsteps. But Mr. Aiken notes that for all the talk of a new mortgage war breaking out, the past shows that it’s more likely to be a stalemate than a war.
“While similar concerns arose last year, we note that it had very little impact on the industry,” he said. “Similar to last year, we do not anticipate much market disruption (share or margins) for the group, although it could once again put BMO’s margins under pressure.”
Mr. Aiken rates BMO’s stock as underweight, with a price target of $64.00, compared with BMO’s Friday close of $64.08.
With files from the Canadian Press
