BMO Alters Mortgage Lending Policies Amid Tariff War, Affecting Steel and Aluminum Workers
The Bank of Montreal (BMO) has made notable adjustments to its mortgage policies, particularly for borrowers working in steel and aluminum industries, in response to the growing economic risks posed by the ongoing tariff war between Canada and the United States.
In a recent memo to brokers, BMO announced the revision of certain lending criteria, specifically for self-employed borrowers who are employed in sectors impacted by the tariff conflict. The changes, which include lowering the total debt service (TDS) ratio from 44% to 42%, mean that borrowers may qualify for smaller mortgage amounts. This adjustment is intended to provide borrowers with more flexibility in managing their monthly financial obligations amidst a turbulent economic environment.
Tariff War Impacts on Steel and Aluminum Sectors
The shift in BMO’s lending approach comes as Canada faces the fallout from newly imposed tariffs by the United States on Canadian steel and aluminum exports. Canada, the top foreign supplier of steel and aluminum to the U.S., retaliated with 25% tariffs on a broad range of U.S. goods, including metals, computers, and sports equipment. This trade conflict has raised concerns over the economic stability of Canadian industries and workers who rely heavily on these sectors.
BMO has added the steel and aluminum industries to its list of limited appetite industries, which also includes utilities, construction, and transportation sectors. These sectors are classified as higher risk, and the bank has reduced its risk tolerance for clients employed within them. This means the bank is now more cautious about lending to individuals whose financial stability could be affected by the uncertainty surrounding these industries.
Government Response and Relief Measures
In light of the tariff conflict, Canadian industry leaders have expressed concerns about the long-term impact on Canadian workers. The Canadian government has responded with a series of relief measures aimed at protecting workers and businesses affected by the trade dispute.
According to Bloomberg, the Canadian government introduced temporary deferrals on corporate income tax and consumption tax remittances from April 2 to June 30, providing businesses with financial breathing room. Additionally, the government will introduce a new financing facility and streamline access to support programs for workers affected by the tariffs. Prime Minister Mark Carney emphasized that these measures were designed to protect both the Canadian economy and the workforce during this volatile period.
BMO's Precautionary Measures
BMO has stated that its decision to revise mortgage criteria is a precautionary step to ensure the long-term financial health of its customers. The bank clarified that these measures are not intended to penalize workers in affected sectors, but rather to safeguard the financial stability of borrowers who may face challenges due to the ongoing trade dispute.
A spokesperson for the bank emphasized that such policy adjustments are a standard response to broader economic factors, including changes in market conditions and the unfolding effects of the tariff war. They also noted that this change will not have a negative impact on workers but will help them maintain a healthy financial outlook in uncertain times.
Industry Reactions and Future Outlook
BMO’s decision to implement these mortgage changes makes it the first Canadian bank to respond in such a manner to the trade conflict. However, David Larock, a Toronto-based mortgage broker, has suggested that other lenders may follow suit and introduce similar measures in response to the evolving situation.
According to Larock, while the change introduced by BMO is relatively minor, it signals the beginning of a potential trend in which other financial institutions may reassess their lending policies, particularly concerning borrowers in sectors that are heavily impacted by the tariff dispute. As the situation evolves, it is likely that the economic landscape will continue to influence lending practices across Canada.
Key Takeaways:
• The Bank of Montreal (BMO) has revised its mortgage policies due to growing risks from the tariff war between Canada and the United States.
• Self-employed borrowers in the steel and aluminum industries are affected, with BMO reducing the TDS ratio from 44% to 42%, lowering the maximum mortgage amount they can qualify for.
• Canada retaliated against U.S. tariffs with 25% tariffs on various U.S. products, including metals and sports equipment, impacting workers in the steel and aluminum sectors.
• The steel and aluminum industries are now classified as high-risk sectors by BMO, which has adjusted its risk appetite accordingly.
• The Canadian government has introduced relief measures to support businesses and workers, including temporary tax deferrals and a new financing facility.
• BMO clarified that these changes are precautionary and aim to protect the financial health of borrowers amid a turbulent economic landscape.
• David Larock, a mortgage broker, anticipates that other lenders may introduce similar measures as the trade situation evolves.
