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Major bank easing off on mortgage lending in Metro Vancouver

Last Updated May 31, 2016 at 4:00 pm PDT

(iStock Photo)

VANCOUVER (NEWS 1130) – A major bank says it’s going to back off issuing mortgages in Metro Vancouver over our region’s housing prices.

Essentially, Scotiabank is looking at our market and getting a sense there’s too much risk here and in Toronto to keep letting people borrow money to buy a home.

“We’re a little concerned about housing prices in the greater Vancouver area and Toronto,” Scotiabank Chief Executive Brian Porter told Bloomberg TV Canada. “We just took our foot off the gas the last couple quarters in terms of mortgage growth for the reasons I cited, in terms of Vancouver and Toronto.”

Economist Tom Davidoff with the Sauder School of Business breaks down why Scotiabank is making this move.

“Lenders make their money by charging small interest rates, and sometimes making loans that are not insured,” says Davidoff. “If the loan isn’t insured, you’re getting a small interest rate on the upside, but potentially a large loss on the downside. In a market like Vancouver or Toronto, where there’s a lot of uncertainty about where prices are going to go in the next few years, and uncertainty about your borrowers’ ability to make payments should interest rates rise, it becomes very unappealing to take that bet, where you get a little bit on the upside, and a big loss on the downside.”

“While there’s a very big possibility of an upside in these markets, the downside is a very real possibility too.”

Davidoff says if other lenders follow suit, it could be the ultimate test of how important foreign money is in our market.

Tsur Somerville with UBC’s Sauder School of Business commented on this news as well.

“It’s the kind of thing, if you were looking for a trigger to change some of the dynamics in the market, this kind of action by lenders in terms of reducing how much exposure they have to the market is the kind of thing that could slow down the pace of sales,” says Somerville.

Somerville suggests one area that even if the overall market is affected, that may not be true for the condo market specifically.