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Competition in the Canadian Mortgage Market | Scott Dawson
(778) 668-9320 [email protected]

The following 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.


• The results indicate that high-income borrowers pay more for their mortgages, as do loyal consumers, consumers who search less, and those that value large branch networks.

• The Canadian mortgage market has changed substantially in the past 20 years: trust companies have been taken over by banks; small virtual banks have offered new mortgage products; and brokers now play an important role in matching borrowers and lenders.

• The changing structure and practices of the Canadian mortgage market have implications for competition authorities and for financial system regulation.

• Recent research suggests that the rate paid for a mortgage depends on the borrower’s observable characteristics, as well as their local market. Unobserved bargaining ability also appears to play an important role.

• Mortgage-rate discounting affects the speed and degree of pass-through from changes in the central bank’s key policy rate to mortgage rates. Research also suggests that bank mergers do not necessarily lead to mortgage-rate increases

Competition in the Canadian Mortgage Market