The heads of Canada’s top banks expect many mortgage holders to be able to renew at lower rates over the next two years as the lenders compete for a larger share of the market.

Royal Bank of Canada chief executive Dave McKay said 60 per cent of the bank’s customers will renew at lower rates in 2025. Of those who will renew at higher rates, he said 80 per cent will meet the requirements of the industry’s mortgage payment stress test, which essentially means they can manage to make higher payments.

These numbers don’t imply that Canadians aren’t struggling with their payments now, he said, but the risk of not being able to absorb higher mortgage payments has come down.

“When we look at the cohorts that have higher payments, look at the overall payment shocks, it has decompressed significantly,” he said at RBC Capital Markets’ Canadian Bank CEO Conference on Tuesday.

Toronto-Dominion Bank’s chief operating officer Raymond Chun said about a third of the mortgages coming up for renewal in 2025 and 2026 were also renewed in the past few years.

“People had renewed into short term — one year, two years — anticipating interest rates coming down,” he said. “Not everybody is actually renewing at higher rates. A third of the renewals are actually probably renewing from higher rates … down to lower rates.”

After keeping interest rates high for a prolonged period to tackle high inflation rates, the Bank of Canada started cutting rates last year. The cuts are gradually shifting the focus from “mortgage payment shocks” to higher competition for renewals, analysts say.

About 55 per cent of all mortgages with Canadian banks are expected to be renewed in the next two fiscal years and 85 per cent in the next three fiscal years.

These factors could lead to a mortgage war, RBC analysts said in a note in November, as Canadians hunt for lower rates and banks look to improve their existing market share.

“There’s a big renewal strip coming through … we’ll compete hard for that,” McKay said. “We have been on defence for the last two years, absorbing HSBC … we’ve now absorbed HSBC. We are going on the offence with a significantly expanded sales force, which we haven’t had before, and, therefore, we’re super excited about the opportunity.”

Chun said TD has made several investments to boost its mortgage operations, including bringing in mortgage specialists at its branches across the country.

“I look forward to an active season,” he said. “Our goal is to make sure that we are growing profitably and continue to take market share as we go forward.”

Some analysts say the restrictions imposed on TD’s growth in the United States could make the landscape even more competitive because the bank may look to aggressively compete at home to meet its financial needs.

TD in December was fined about US$3.1 billion and a cap was placed on the expansion of its retail banking business by the U.S. Department of Justice and other regulators for failing to monitor money laundering activities at its branches.

Canadian Imperial Bank of Commerce chief executive Victor Dodig said his bank expects to renew about 200,000-plus mortgages in each of the next three years and is confident of a high renewal rate.

He said CIBC has a process in place to reach out to its clients five months before renewal. The bank has also invested in digital processes such as mobile mortgage advisers.

“We live in a very competitive market, the premier league of banking, as I see it,” he said. “But we know that we can hold our own. Our goal is to grow more or less with the market.”

• Email: nkarim@postmedia.com

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