Competition in the Canadian Mortgage Market

Abstract

This article begins with a brief examination of the Canadian mortgage market, focusing on the market’s evolution following changes to the Bank Act in 1992, which allowed chartered banks to enter the trust business, and the subsequent entrance of virtual banks and mortgage brokers. It then summarizes key research currently being undertaken by the Bank of Canada. This research suggests that the mortgage rates paid by borrowers depend on their observable characteristics, their local market, and their bargaining ability. Results also imply that mortgage-rate discounting affects the speed and amount of pass-through of changes in the central bank’s policy rate to mortgage rates. Findings also suggest that bank mergers can lead to asymmetric effects on mortgage rates.