Canadian mortgage costs set to rise as big banks raise prime lending rate to 6.45%

Prime lending rates at major Canadian banks rose across the board following the Bank of Canada’s latest oversized interest rate hike Wednesday.

RBC, TD Bank, BMO, CIBC, Scotiabank and National Bank all said since Wednesday that they have raised their prime rates to 6.45 per cent from the previous 5.95 per cent.

The moves mirror the 50-basis-point interest rate hike from the Bank of Canada on Wednesday, bringing its policy rate to 4.25 per cent.

The central bank’s key interest rate has jumped four percentage points over the course of seven increases in 2022, marking one of the tightest tightening cycles in its history.

The Bank of Canada’s policy rate sets lending rates for major banking institutions and generally makes borrowing more expensive for Canadians with certain kinds of debt.

Commercial banks set prime lending rates as benchmarks for loans such as mortgage products offered to homeowners.

Canada’s financial regulator is meanwhile raising the amount of capital major banks need to have on hand over concerns of high household debt levels and other systemic vulnerabilities.

The Office of the Superintendent of Financial Institutions said Thursday the domestic stability buffer will go up by half a percentage point to three per cent as of Feb. 1, 2023.

The regulator also increased the possible range of future adjustments to between zero and four per cent, rather than the previous top end of 2.5 per cent.

OFSI chief risk officer Angie Radiskovic said in a statement that the increases will help increase the stability of major banks and public confidence in the financial system.

The regulator says the increase in the buffer reflect its assessment that systemic vulnerabilities remain elevated while some, such as high Canadian debt levels and asset imbalances, are on the rise.

The stability buffer, which applies to domestic systemically important banks, was launched in 2018 and is set twice a year, but can be changed at other times if needed.

— with files from The Canadian Press

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