OTTAWA • Insisting that he will not tolerate a “race to the bottom” on mortgage rates, Finance Minister Jim Flaherty has succeeded in pressuring Manulife Bank to cancel its plans to offer consumers a lower interest rate on its five-year-fixed mortgage. The intervention drew fire Tuesday from critics, inside and outside the House of Commons, accusing the minister of manipulating market prices.
Manulife Bank said Tuesday it was withdrawing its offer to borrowers, first made late Monday, for a five-year-fixed mortgage rate of 2.89%, which it had discounted from 3.09%.
“After consulting with the Department of Finance, Manulife Bank has withdrawn the promotional campaign and reverted to our previous posted rate,” the bank said in a statement.
A spokesperson for Mr. Flaherty said the minister was unhappy with the move by Manulife, and instructed Finance staff to tell the bank that its lowered rates would not be tolerated.
NDP Leader Tom Mulcair accused Mr. Flaherty of using his position to pressure a private-sector mortgage lender to raise its interest rates, an action that will increase borrowing costs for Canadians.
“That’s Banana Republic behaviour,” said Mr. Mulcair, who added the minister has no business interfering with the free marketplace.
“That company is operating completely with full respect of the law, they see an advantage in attracting clients at this rate, why shouldn’t they go out to do that?” Mr. Mulcair asked.
“It’s none of his business. It’s the minister’s opinion, it’s nuts. We’ve never seen this before.”
Liberal interim leader Bob Rae called the minister’s actions “ridiculous” and a move that would increase borrowing costs for Canadians.
“Either we have a market or we don’t,” he said. “The banks have huge profits. The idea that they shouldn’t be able to give a break to consumers is ridiculous and the idea that the minister of finance would basically be trying to create some kind of a cartel among the banks and the financial institutions as to what they can offer consumers by way of interest rates is, I think, completely inappropriate, completely wrong actually.”
John Andrew, a real estate professor at Queen’s University in Kingston, Ont. said he was “shocked” by Mr. Flaherty’s uninhibited tampering with market prices. “It’s a very overt attempt to manipulate what I see as the competitive free market,” he told Bloomberg News. He also said Manulife looked “weak” for giving into the government pressure. “Manulife looks like the kid who just had his lunch money stolen,” Mr. Andrew said.
Mr. Flaherty related similar concerns about lowering rates to the Bank of Montreal (BMO) this month when that bank cut its five-year fixed-rate mortgages to 2.99% from 3.09%. Early last year, a similar move by BMO sparked a mortgage-rate war as Canada’s housing market was still heating up.
“As I said before, we encourage prudent lending practices, we don’t want a race to the bottom on mortgage rates by our financial institutions so I’m pleased at their response,” Mr. Flaherty told reporters.
“I had one of my staff call them and indicate my displeasure, which is the same thing I did with the BMO, except I called myself.”
The Canadian Bankers Association, meanwhile, declined to enter the debate over this latest bid by Mr. Flaherty to quash low-rate mortgages.
“The CBA does not comment on the individual business decisions of its members,” it said in a statement.
However, the association added that “banks take seriously their responsibility to lend prudently and have a strong track record as careful lenders.”
In July, Mr. Flaherty brought in tougher mortgage rules as a means to cool the Canadian housing market. These included shortening mortgage amortization periods to 25 years, from as long as 40 years.
Both Mr. Flaherty and the Bank of Canada governor, Mark Carney, have publicly cautioned about households becoming over-extended by debt during this period of low borrowing costs, warning that interest rates will eventually be going back up.
National Post with files from The Canadian Press