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UK interest rate rise: what the Bank of England’s historic hike means for your money

The latest on the UK base rate rise and how it might affect your finances



Households will feel the effect of rate rises as the Bank of England tries to slow inflation. New Africa / Shutterstock

The Bank of England has raised its base rate by 0.5 percentage points, the largest single upward jump in 27 years. It takes the base rate to 1.75%, its highest level since 2008. This latest interest rate hike will affect personal finances and reflects the Bank’s efforts to control rampant inflation amid the cost of living crisis in the UK.

The government tasked the Bank of England with maintaining UK inflation at a stable level of 2% a year. At present, inflation is way above this target at 9.4%, and it’s currently forecast to exceed 11% by October. Among the main reasons for this high inflation is the massive surge in the prices of global energy, grain and other key commodities. This has been caused by recent supply chain disruption and the Russian war on Ukraine.

Read more: Five essential commodities that will be hit by war in Ukraine

These external factors are beyond the Bank of England’s control. But the Bank is concerned that high levels of inflation will become baked into the economy if domestic wages and prices spiral upwards to compensate for these global price rises. By raising the base rate, it aims to slow the UK economy, weakening workers’ wage bargaining power and so forcing inflation back down.

This isn’t going to happen overnight. It takes one to two years for the effects of base rate increases to work through the economy. But once this happens, the effects are painful. The Bank has forecast that unemployment will rise from 3.8% today to 5.5% next year, implying that an extra 600,000 people will lose their jobs. And, if your wages and other income are lagging behind inflation, your standard of living is being squeezed.

The Bank of England base rate is an important benchmark used by banks to set the interest rates for all kinds of financial products. So, when it comes to personal finances, a base rate rise has a varied impact. Here are the main ways your money will be affected.

Your savings

In theory, the rise in the Bank of England base rate should be good news for savers with bank and building society accounts and government-backed National Savings & Investment products. The rise should be passed on to your account’s interest rate, although this depends on the extent to which providers allow their savings rates to follow the rise in base rates, as well as how far rates actually rise.

Savers should look at the real return, which is the quoted interest rate less the inflation rate. As the chart below shows, easy-access savers last saw inflation-beating returns back in early 2008, before the global financial crisis took hold. Since then, real returns have been persistently negative. In effect, this means savers are paying for the privilege of keeping their money readily accessible.

Bank of England base rate versus savings rates

Line chart showing Bank of Englnd base rate changes and savings rates
Bank of England base rate and real return on easy access savings account, November 2003 to June 2022. Author’s chart based on data from Bank of England, Office for National Statistics and selected print editions of Moneyfacts

Back in November 2021, before this recent series of base rate rises, the best easy-access accounts were offering rates of around 0.60% to 0.70% a year, according to my research using Moneyfacts data. By June, these rates had risen to 1.55% but this has been outstripped by the rise in inflation and so savers’ real returns have fallen rather than improved.

Rates are higher – at more than 3% a year – if you’re prepared to lock your money away for two to five years. That could look appealing if you expect a fairly rapid fall in inflation back to the 2% target.

Your pension

When approaching retirement, you may use some or all of your pension savings to buy an annuity. Although this is a product that pays a secure income for life, you must give up your savings to buy it and changing your mind later on is not an option.

The rising base rate is feeding through to improve annuity rates. For example, if you’re 65 years old, with an average pot size of £68,000, Moneyfacts data suggests you could have bought a fixed yearly income for life of £3,352 in November 2021. By June, that potential income increased by more than a fifth to £4,066.

Your mortgage

House prices have boomed for decades, especially since the 2008 global financial crisis. This has been fuelled by central bank quantitative easing programmes, which are designed to drive down interest rates and cause asset prices to rise because more money is available for borrowing and investing.

Rising house prices have been a boon if you’re already a homeowner, but this has also made it increasingly difficult for new buyers to afford a home. The average house price was around four times average earnings at the start of this century, rising to seven times by 2007 and is now eight times earnings. This means newer buyers have to take on much larger mortgage debts than previous generations.

Fish jumping from crowded fishbowl into a bigger empty fishbowl
Rising house prices have made it more difficult for new buyers to get their own homes. khz / Shutterstock

Large mortgages were not a problem while interest rates were historically low, as they have been since 2008. But the rise in base rates is now storing up problems in this area. Around three-quarters of current mortgage borrowers are on a fixed-rate deal of two to five years. If that applies to you, you’re sheltered from the base rate rises for now, but you should prepare for a jump in your repayments when your fixed-rate deal comes to an end. For the 2 million borrowers with a standard variable rate or tracker mortgage, housing costs are already rising rapidly.

Another important consideration is whether rising mortgage costs will choke demand and cause house prices to fall. The Halifax House Price Index shows no sign of a slowdown yet, which it attributes to a persistent supply shortage and continuing demand from better-off households who accumulated savings during the pandemic.

On the other hand, another major UK house price tracker, the Nationwide House Price Index, is showing “tentative signs of a slowdown in activity”. This has yet to feed through to prices. But the building society’s chief economist expects the UK housing market to slow as inflation puts pressure on household budgets and as the Bank of England raises interest rates further. As he points out, this is “widely expected” to happen.

Jonquil Lowe does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Spread & Containment

$265 Billion In Added Value To Evaporate From Germany Economy Amid Energy Crisis, Study Warns

$265 Billion In Added Value To Evaporate From Germany Economy Amid Energy Crisis, Study Warns

A new report published by the Employment Research…



$265 Billion In Added Value To Evaporate From Germany Economy Amid Energy Crisis, Study Warns

A new report published by the Employment Research (IAB) on Tuesday outlines how Germany's economy will lose a whopping 260 billion euros ($265 billion) in added value by the end of the decade due to high energy prices sparked by Russia's invasion of Ukraine which will have severe ramifications on the labor market, according to Reuters

IAB said Germany's price-adjusted GDP could be 1.7% lower in 2023, with approximately 240,000 job losses, adding labor market turmoil could last through 2026. It expects the labor market will begin rehealing by 2030 with 60,000 job additions.

The report pointed out the hospitality industry will be one of the biggest losers in the coming downturn that the coronavirus pandemic has already hit. Consumers who have seen their purchasing power collapse due to negative real wage growth as the highest inflation in decades runs rampant through the economy will reduce spending. 

IAB said energy-intensive industries, such as chemical and metal industries, will be significantly affected by soaring power prices. 

In one scenario, IAB said if energy prices, already up 160%, were to double again, Germany's economic output would crater by nearly 4% than it would have without energy supply disruptions from Russia. Under this assumption, 660,000 fewer people would be employed after three years and still 60,000 fewer in 2030. 

This week alone, German power prices hit record highs as a heat wave increased demand, putting pressure on energy supplies ahead of winter. 

Rising power costs are putting German households in economic misery as economic sentiment across the euro-area economy tumbled to a new record low. What happens in Germany tends to spread to the rest of the EU. 

There are concerns that a sharp weakening of growth in Germany could trigger stagflation as German inflation unexpectedly re-accelerated in July, with EU-Harmonized CPI rising 8.5% YoY. 

Germany is facing an unprecedented energy crisis as Russian natural gas cuts via the Nord Stream 1 pipeline will reverse the prosperity many have been accustomed to as the largest economy in Europe. 

"We are facing the biggest crisis the country has ever had. We have to be honest and say: First of all, we will lose the prosperity that we have had for years," Rainer Dulger, head of the Confederation of German Employers' Associations, warned last month. 

Besides Dulger, Economy Minister Robert Habeck warned of a "catastrophic winter" ahead over Russian NatGas cut fears.

Other officials and experts forecast bankruptcies, inflation, and energy rationing this winter that could unleash a tsunami of shockwaves across the German economy.  

Yasmin Fahimi, the head of the German Federation of Trade Unions, warned last month:

"Because of the NatGas bottlenecks, entire industries are in danger of permanently collapsing: aluminum, glass, the chemical industry." 

IAB's report appears to be on point as the German economy seems to be diving head first into an economic crisis. Much of this could've been prevented, but Europe and the US have been so adamant about slapping Russia with sanctions that have embarrassingly backfired. 

Tyler Durden Wed, 08/10/2022 - 04:15

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Spread & Containment

Will Powell Pivot? Don’t Count On It

Stocks are rallying on hopes that Jerome Powell and the Fed will stop increasing interest rates this fall, pivot, and start reducing them next year. For…



Stocks are rallying on hopes that Jerome Powell and the Fed will stop increasing interest rates this fall, pivot, and start reducing them next year. For fear of missing out on the next great bull run, many investors are blindly buying into this new Powell pivot narrative.

What these investors fail to realize is the Fed has a problem. Inflation is raging, the likes of which the Fed hasn’t dealt with since Jerome Powell earned his law degree from Georgetown University in 1979.  

Despite inflation, markets seem to assume that today’s Fed has the same mindset as the 1990-2021 Fed. The old Fed would have stopped raising rates when stocks fell 20% and certainly on the second consecutive negative GDP print. The current Fed seems to want to keep raising rates and reducing its balance sheet (QT).

The market-friendly Fed we grew accustomed to over the last few decades may not be driving the ship anymore. Yesterday’s investment strategies may prove flawed if a new inflation-minded Fed is at the wheel.

Of course, you can ignore the realities of today’s high inflation and take Jim Cramer’s ever-bullish advice.

When the Fed gets out of the way, you have a real window and you’ve got to jump through it. … When a recession comes, the Fed has the good sense to stop raising rates,” the “Mad Money” host said. “And that pause means you’ve got to buy stocks.

Shifting Market Expectations

On June 10, 2022, the Fed Funds Futures markets implied the Fed would raise the Fed Funds rate to 3.20% in January 2023 and to 3.65% by July 2023. Such suggests the Fed would raise rates by almost 50bps between January and July.

Now the market implies Fed Funds will be 3.59% in January, up .40% in the last two months. However, the market implies July Fed Funds will be 3.52%, or .13% less than its January expectations. The market is pricing in a rate reduction between January and July.

The graph below highlights the recent shift in market expectations over the last two months.

The graph below from the Daily Shot shows compares the market’s implied expectations for Fed Funds (black) versus the Fed’s expectations. Each blue dot represents where each Fed member thinks Fed Funds will be at each year-end. The market underestimates the Fed’s resolve to increase interest rates by about 1%.

Short Term Inflation Projections

The biggest flaw with pricing in predicting a stall and Powell pivot in the near term is the possible trajectory of inflation. The graph below shows annual CPI rates based on three conservative monthly inflation data assumptions.

If monthly inflation is zero for the remainder of 2022, which is highly unlikely, CPI will only fall to 5.43%. Yes, that is much better than today’s 9.1%, but it is still well above the Fed’s 2.0% target. The other more likely scenarios are too high to allow the Fed to halt its fight against inflation.

cpi inflation

Inflation on its own, even in a rosy scenario, is not likely to get Powell to pivot. However, economic weakness, deteriorating labor markets, or financial instability could change his mind.

Recession, Labor, and Financial Instability

GDP just printed two negative quarters in a row. Some economists call that a recession. The NBER, the official determiner of recessions, also considers the health of the labor markets in their recession decision-making. 

The graph below shows the unemployment rate (blue), recessions (gray), and the number of months the unemployment rate troughed (red) before each recession. Since 1950 there have been eleven recessions. On average, the unemployment rate bottoms 2.5 months before an official recession declaration by the NBER. In seven of the eleven instances, the unemployment rate started rising one or two months before a recession.

unemployment and recession

The unemployment rate may start ticking up shortly, but consider it is presently at a historically low level. At 3.5%, it is well below the 6.2% average of the last 50 years. Of the 630 monthly jobs reports since 1970, there are only three other instances where the unemployment rate dipped to 3.5%. There are zero instances since 1970 below 3.5%!

Despite some recent signs of weakness, the labor market is historically tight. For example, job openings slipped from 11.85 million in March to 10.70 in June. However, as we show below, it remains well above historical norms.

jobs employment recession

A tight labor market that can lead to higher inflation via a price-wage spiral is of concern for the Fed. Such fear gives the Fed ample reason to keep tightening rates even if the labor markets weaken. For more on price-wage spirals, please read our article Persistent Inflation Scares the Fed.

Financial Stability

Besides economic deterioration or labor market troubles, financial instability might cause Jerome Powell to pivot. While there were some growing signs of financial instability in the spring, those warnings have dissipated.  

For example, the Fed pays close attention to the yield spread between corporate bonds and Treasury bonds (OAS) for signs of instability. They pay particular attention to yield spreads of junk-rated corporate debt as they are more volatile than investment-grade paper and often are the first assets to show signs of problems.

The graph below plots the daily intersections of investment grade (BBB) OAS and junk (BB) OAS since 1996. As shown, the OAS on junk-rated debt is almost 3% below what should be expected based on the robust correlation between the two yield spreads. Corporate debt markets are showing no signs of instability!

corporate bonds financial stability

Stocks, on the other hand, are lower this year. The S&P 500 is down about 15% year to date. However, it is still up about 25% since the pandemic started. More importantly, valuations have fallen but are still well above historical averages. So, while stock prices are down, there are few signs of equity market instability. In fact, the recent rally is starting to elicit FOMO behaviors so often seen in speculative bullish runs.

Declining yields, tightening yield spreads, and rising asset prices are inflationary. If anything, recent market stability gives the Fed a reason to keep raising rates. Ex-New York Fed President Bill Dudley recently commented that market speculation about a Fed pivot is overdone and counterproductive to the Fed’s efforts to bring down inflation.

What Does the Fed Think?

The following quotes and headlines have all come out since the late July 2022 Fed meeting. They all point to a Fed with no intent to stall or pivot despite its effect on jobs and the economy.

  • Fed’s Kashkari: concerning inflation is spreading; we need to act with urgency
  • St. Louis Fed President James Bullard says he favors a strategy of “front-loading” big interest-rate hikes, repeating that he wants to end the year at 3.75% to 4% – Bloomberg
  • “If you have to cut off the tail of a dog, don’t do it one inch at a time.”- Fed President Bullard
  • “There is a path to getting inflation under control,” Barkin said, “but a recession could happen in the process” – MarketWatch
  • The Fed is “nowhere near” being done in its fight against inflation, said Mary Daly, the San Francisco Federal Reserve Bank president, in a CNBC interview Tuesday.  –MarketWatch
  • “We think it’s necessary to have growth slow down,” Powell said last week. “We actually think we need a period of growth below potential, to create some slack so that the supply side can catch up. We also think that there will be, in all likelihood, some softening in labor market conditions. And those are things that we expect…to get inflation back down on the path to 2 percent.”


We are highly doubtful that Powell will pivot anytime soon. Supporting our view is the recent action of the Bank of England. On August 4th they raised interest rates by 50bps despite forecasting a recession starting this year and lasting through 2023. Central bankers understand this inflation outbreak is unique and are caught off guard by its persistence.

The economy and markets may test their resolve, but the threat of a long-lasting price-wage spiral will keep the Fed and other banks from taking their foot off the brakes too soon.

We close by reminding you that inflation will start falling in the months ahead, but it hasn’t even officially peaked yet.

The post Will Powell Pivot? Don’t Count On It appeared first on RIA.

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Canada NewsWire
TORONTO, Aug. 9, 2022

TORONTO, Aug. 9, 2022 /CNW/ – MCAN Mortgage Corporation d/b/a MCAN Financial Group (“MCAN”, the “Company” or “we”) (TSX: M…




Canada NewsWire

TORONTO, Aug. 9, 2022 /CNW/ - MCAN Mortgage Corporation d/b/a MCAN Financial Group ("MCAN", the "Company" or "we") (TSX: MKP) reported net income of $4.1 million ($0.13 earnings per share) for the second quarter of 2022, a decrease from net income of $19.4 million ($0.73 earnings per share) in the second quarter of 2021.  Second quarter 2022 return on average shareholders' equity1 was 3.75% compared to 21.28% in the prior year.  Year to date, we reported net income of $19.6 million ($0.64 earnings per share), a decrease from net income of $35.3 million ($1.38 earnings per share) in 2021. Year to date return on average shareholders' equity1 was 8.94% compared to 19.75% in the prior year.  We reported lower total net income mainly as a result of unrealized fair value losses on our REIT portfolio due to the current market environment partially offset by growth in our core business.  Unrealized fair value gains and losses on our REIT portfolio were a $10.0 million net loss ($0.32 loss per share) for the second quarter of 2022 and a $7.0 million net loss ($0.23 loss per share) year to date 2022 compared to a $6.5 million net gain ($0.24 earnings per share) for the second quarter of 2021 and a $10.4 million net gain ($0.40 earnings per share) for year to date 2021.  Excluding the unrealized fair value gains and losses on our REIT portfolio, current net income would have been higher for the quarter and year to date compared to prior year.  While we expect continued volatility in the REIT market, we are invested for the long-term and we continue to realize the benefits of solid cash flows and distributions from these investments. 

The Board of Directors declared a third quarter regular cash dividend of $0.36 per share to be paid September 29, 2022 to shareholders of record as of September 15, 2022.  As a mortgage investment corporation, we pay out all of our taxable income to shareholders through dividends.  At this time, we expect to have taxable income per share materially consistent with our regular cash dividends per share.

"Our second quarter results from our core business were in line with our expectations given the current rising interest rate environment, housing market challenges and inflation, which are all causing new uncertainty in the Canadian and global economy," said Karen Weaver, President and Chief Executive Officer. "In a rising interest rate environment, our business has various levers that are positive for managing net mortgage interest including the one year term of our uninsured residential mortgages and the floating rates on our construction portfolio.  We remain focused on achieving solid margins in our core mortgage and lending business and, where possible, rebalancing within our risk appetite, to higher yielding construction products for affordable housing which are in demand in supply constrained urban markets."


  • Corporate assets totalled $2.32 billion at June 30, 2022, a net increase of $157 million (7%) from December 31, 2021 driven mainly by growth in our major assets:

    • Uninsured residential mortgages totalled $871 million at June 30, 2022, a net increase of $88 million (11%) from December 31, 2021.  Uninsured residential mortgage originations totalled $248 million year to date 2022, a decrease of $4 million (2%) from the same period in 2021.  We are actively rebalancing to a lower proportion of uninsured residential mortgage originations given the current competitive landscape and tighter net mortgage interest.

    • Construction and commercial mortgages totalled $854 million at June 30, 2022, a net increase of $77 million (10%) from December 31, 2021.  Construction and commercial mortgage originations totalled $294 million year to date 2022, a decrease of $73 million (20%) from the same period in 2021.  We will look to rebalance through the remainder of this year and next year, if possible, to a higher proportion of construction and commercial loans that fit within our risk appetite and capital requirements.

    • Non-marketable securities totalled $84 million at June 30, 2022, an increase of $19 million (29%) from December 31, 2021 with $42 million of remaining capital advances expected to fund over the next five years. 

    • Marketable securities totalled $57 million at June 30, 2022, a net decrease of $6 million (9%) from December 31, 2021 comprised of $7 million of REIT purchases net of $4 million of REIT sales and $9 million of net realized and unrealized fair value losses. 

  • Securitized mortgages totalled $1.70 billion at June 30, 2022, a net increase of $116 million (7%) from December 31, 2021 primarily due to continued originations and securitization volumes:

    • Insured residential mortgage originations totalled $373 million year to date 2022, a decrease of $3 million (1%) from the same period in 2021.  This includes $97 million of insured residential mortgage commitments originated and sold compared to $9 million in 2021.  Insured residential mortgage securitizations totalled $258 million year to date 2022, a decrease of $145 million (36%) from the same period in 2021.  We use various channels in the insured residential mortgage market, in the context of market conditions and net contributions over the life of the mortgages, in order to support our core business. 

Financial Update

  • Net corporate mortgage spread income1 increased by $3.6 million for Q2 2022 from Q2 2021 and increased $7.3 million for year to date 2022 from 2021 due to a higher average corporate mortgage portfolio balance partially offset by a reduction in the spread of corporate mortgages over term deposit interest and expenses.  For Q2 2022, the decrease in the spread of corporate mortgages over term deposit interest and expenses from Q2 2021 was attributable to (i) the decline in our average mortgage rate primarily due to continued market competition and our portfolio mix with fewer land development loans; and (ii) higher term deposit rates due to dislocation from the Russian/Ukraine conflict and actual and expected Bank of Canada rate increases.  For year to date 2022, the decrease in the spread of corporate mortgages over term deposit interest and expenses from year to date 2021 was attributable to (i) the decline in average mortgage rates similar to the quarter; and (ii) the decline in term deposit rates during 2021 and as the higher rate term deposits mature, the average term deposit rate of the outstanding average term deposit balance had declined.

  • Net securitized mortgage spread income1 decreased by $0.4 million for Q2 2022 from Q2 2021 and decreased $0.6 million for the year to date 2022 over the same period in 2021 mainly due to a decrease in the spread of securitized mortgages over liabilities partially offset by a higher average securitized mortgage portfolio balance from originations of insured residential mortgages.  We have seen spreads decline on securitizations mainly as a result of a decline in the spread of Government of Canada bond yields versus our mortgage rates. Government of Canada bond yields have risen significantly in 2022 as we have entered a rising interest rate environment.

  • Allowance for credit losses on our corporate mortgage portfolio totalled $5.8 million at June 30, 2022, a net decrease of $0.9 million from December 31, 2021.  The decrease is mainly due to improved economic forecasts when compared to the outlook and pessimism relating to the COVID-19 wave during late December 2021. Partially offsetting this was growth in our portfolio.

  • Equity income from MCAP Commercial LP ("MCAP") totalled $6.3 million in Q2 2022, a decrease of $0.6 million (8%) from $6.9 million in Q2 2021, and totalled $11.5 million for year to date 2022, a decrease of $2.1 million (15%) from $13.6 million year to date 2021. The decrease in both the quarter and year to date was primarily due to lower net interest income on securitized mortgages resulting from lower securitization spreads, lower mortgage origination fees due to tighter mortgage spreads versus securitization spreads, and higher operating costs related to the acquisition of Paradigm Quest Inc. in Q3 2021.  This was partially offset by higher servicing and administration revenue resulting from higher assets under management and higher financial instrument (hedge) gains.  

  • In Q2 2022, we recorded a $9.9 million net unrealized loss on securities compared to a $6.5 million net unrealized gain on securities in Q2 2021. Year to date net realized and unrealized loss on securities of $8.7 million for 2022 compared to a year to date net unrealized gain on securities of $10.4 million for 2021.  We began to see more recent declines in REIT prices from current geopolitical conflicts and a rising interest rate environment compared to optimism in 2021 around vaccine roll-outs.  In Q1 2022, one REIT in our portfolio had a mandatory corporate action resulting in privatization and as such we recognized a $1.8 million realized loss.   

Credit Quality

  • Impaired corporate mortgage ratio1 was 0.01% at June 30, 2022 compared to 0.03% at March 31, 2022 and 0.05% at December 31, 2021.  

  • Impaired total mortgage ratio1 was 0.02% at June 30, 2022 compared to 0.02% at March 31, 2022 and 0.03% at December 31, 2021. 

  • Arrears total mortgage ratio1 was 0.36% at June 30, 2022 compared to 0.40% at March 31, 2022 and 0.46% at December 31, 2021.     
  • Average loan to value ratio ("LTV") of our uninsured single family portfolio based on an industry index of current real estate values was 58.1% at June 30, 2022 compared to 55.5% at March 31, 2022 and 60.3% at December 31, 2021.


  • In 2021, we filed a Prospectus Supplement to our Base Shelf prospectus establishing an at-the-market equity program ("ATM Program") to issue up to $30 million common shares to the public from time to time over a 2 year period at the market prices prevailing at the time of sale. The volume and timing of distributions under the ATM Program will be determined at our sole discretion. During Q2 2022, we sold 211,700 common shares at a weighted average price of $17.89 for gross proceeds of $3.8 million and net proceeds of $3.6 million including $0.1 million of commission paid to our agent and $0.1 million of other share issuance costs under the ATM Program.  Year to date 2022, we sold 236,000 common shares at a weighted average price of $17.88 for gross proceeds of $4.2 million and net proceeds of $4.0 million including $0.1 million of commission paid to our agent and $0.1 million of other share issuance costs under the ATM Program.

  • We issued $28.8 million in new common shares on March 31, 2022 from our 2022 first quarter special stock dividend to shareholders.

  • We issued $2.0 million in new common shares in Q2 2022 (Q2 2021 - $1.6 million) and $5.4 million year to date 2022 ($4.4 million - year to date 2021) through the Dividend Reinvestment Plan ("DRIP").  The DRIP participation rate for the 2022 second quarter dividend was 17% (2022 first quarter - 17%; 2021 second quarter - 17%).  The DRIP is a program that has historically provided MCAN with a reliable source of new capital and existing shareholders an opportunity to acquire additional shares at a discount to market value. 

  • Income tax assets to capital ratio3 was 5.53 at June 30, 2022 compared to 5.53 at March 31, 2022 and 5.29 at December 31, 2021.

  • Common Equity Tier 1 ("CET 1") and Tier 1 Capital to risk-weighted assets ratios2 were 18.82% at June 30, 2022 compared to 19.32% at March 31, 2022 and 20.26% at December 31, 2021. Total Capital to risk-weighted assets ratio2 was 19.09% at June 30, 2022 compared to 19.57% at March 31, 2022 and 20.54% at December 31, 2021. 

  • Leverage ratio2 was 8.82% at June 30, 2022 compared to 8.96% at March 31, 2022 and 9.41% at December 31, 2021.

1 Considered to be a non-GAAP and other financial measure. For further details, refer to the "Non-GAAP and Other Financial Measures" section of this new release.  Non-GAAP and other financial measures and ratios used in this document are not defined terms under IFRS and, therefore, may not be comparable to similar terms used by other issuers.

2 These measures have been calculated in accordance with OSFI's Leverage Requirements and Capital Adequacy Requirements guidelines.  Effective March 31, 2020, the total capital ratio reflects the inclusion of stage 1 and stage 2 allowances on the Company's mortgage portfolio in Tier 2 capital. In accordance with OSFI's transitional arrangements for capital treatment of ECL issued March 27, 2020, a portion of stage 1 and stage 2 allowances that would otherwise be included in Tier 2 capital are included in CET 1 capital. The adjustment to CET 1 capital will be measured each quarter as the increase, if any, in stage 1 and stage 2 allowances compared to the corresponding allowances at December 31, 2019. The increase, if any, is subject to a scaling factor that will decrease over time and was 70% in fiscal 2020, 50% in fiscal 2021 and is set at 25% in fiscal 2022.

3 Tax balances are calculated in accordance with the Tax Act.

Further Information

Complete copies of the Company's 2022 Second Quarter Report will be filed on the System for Electronic Document Analysis and Retrieval ("SEDAR") at and on the Company's website at

For our Outlook, refer to the "Outlook" section of the 2022 Second Quarter Report.

MCAN is a public company listed on the Toronto Stock Exchange under the symbol MKP and is a reporting issuer in all provinces and territories in Canada.  MCAN also qualifies as a mortgage investment corporation ("MIC") under the Income Tax Act (Canada) (the "Tax Act"). 

The Company's primary objective is to generate a reliable stream of income by investing in a diversified portfolio of Canadian mortgages, including residential, residential construction, non-residential construction and commercial loans, as well as other types of securities, loans and real estate investments. MCAN employs leverage by issuing term deposits that are eligible for Canada Deposit Insurance Corporation deposit insurance that are sourced through a network of independent financial agents. We manage our capital and asset balances based on the regulations and limits of both the Tax Act and the Office of the Superintendent of Financial Institutions Canada ("OSFI").

As a MIC, we are entitled to deduct the dividends that we pay to shareholders from our taxable income.  Regular dividends are treated as interest income to shareholders for income tax purposes.  We are also able to pay capital gains dividends, which would be treated as capital gains to shareholders for income tax purposes. Dividends paid to foreign investors may be subject to withholding taxes.  To meet the MIC criteria, 67% of our non-consolidated assets measured on a tax basis are required to be held in cash or cash equivalents and residential mortgages.

Our MCAN Home division operates through MCAN's wholly owned subsidiary, XMC Mortgage Corporation, which has legally changed its name effective April 1, 2022, to MCAN Home Mortgage Corporation. 

For how to enroll in the DRIP, please refer to the Management Information Circular dated March 11, 2022 or visit our website at  Under the DRIP, dividends paid to shareholders are automatically reinvested in common shares issued out of treasury at the weighted average trading price for the five days preceding such issue less a discount of 2%.

Non-GAAP and Other Financial Measures

This news release references a number of non-GAAP and other financial measures and ratios to assess our performance such as return on average shareholders' equity, net corporate mortgage spread income, net securitized mortgage spread income, impaired corporate mortgage ratio, impaired total mortgage ratio, and arrears total mortgage ratio.  These measures are not calculated in accordance with International Financial Reporting Standards ("IFRS"), are not defined by IFRS and do not have standardized meanings that would ensure consistency and comparability between companies using these measures.  These metrics are considered to be non-GAAP and other financial measures and are incorporated by reference and defined in the "Non-GAAP and Other Financial Measures" section of our 2022 Second Quarter MD&A available on SEDAR at Below are reconciliations for our non-GAAP financial measures included in this news release using the most directly comparable IFRS financial measures.

Net Corporate Mortgage Spread Income 
Non-GAAP financial measure that is an indicator of net interest profitability of income-earning assets less cost of funding for our corporate mortgage portfolio.  It is calculated as the difference between corporate mortgage interest and term deposit interest and expenses. 

(in thousands)







For the Periods Ended June 30







Mortgage interest - corporate assets

$     22,815

$     16,543

$     43,323

$     32,315

Term deposit interest and expenses





Net Corporate Mortgage Spread Income

$     12,630

$       9,071

$       3,559

$     24,620

$     17,287

$       7,333

Net Securitized Mortgage Spread Income
Non-GAAP financial measure that is an indicator of net interest profitability of income-earning securitization assets less cost of securitization liabilities for our securitized mortgage portfolio.  It is calculated as the difference between securitized mortgage interest and interest on financial liabilities from securitization. 

(in thousands)







For the Periods Ended June 30







Mortgage interest - securitized assets

$       7,598

$       7,266

$     14,855

$     13,898

Interest on financial liabilities from securitization





Net Securitized Mortgage Spread Income

$       1,965

$       2,353

$         (388)

$       3,973

$       4,559

$         (586)

A Caution About Forward-looking Information and Statements

This news release contains forward-looking information within the meaning of applicable Canadian securities laws.  All information contained in this news release, other than statements of current and historical fact, is forward-looking information. All of the forward-looking information in this news release is qualified by this cautionary note. Often, but not always, forward-looking information can be identified by the use of words such as "may," "believe," "will," "anticipate," "expect," "planned," "estimate," "project," "future," and variations of these or similar words or other expressions that are predictions of, or indicate, future events and trends and that do not relate to historical matters. Forward-looking information in this news release includes, among others, statements and assumptions with respect to:

  • the current business environment, economic environment and outlook;
  • the impact of global health pandemics on the Canadian economy and globally, including COVID-19; 
  • possible or assumed future results;
  • our ability to create shareholder value;
  • our business goals and strategy;
  • the potential impact of new regulations and changes to existing regulations;
  • the stability of home prices;
  • the effect of challenging conditions on us;
  • the performance of our investments;
  • factors affecting our competitive position within the housing lending market;
  • international trade and geopolitical uncertainties and their impact on the Canadian economy, including the Russia/Ukraine conflict;
  • sufficiency of our access to capital resources;
  • the timing and effect of interest rate changes on our cash flows; and
  • the declaration and payment of dividends.

Forward-looking information is not, and cannot be, a guarantee of future results or events. Forward-looking information reflects management's current beliefs and is based on information currently available to management. Forward-looking information is based on, among other things, opinions, assumptions, estimates and analyses that, while considered reasonable by us at the date the forward-looking information is provided, inherently are subject to significant risks, uncertainties, contingencies and other factors that may cause actual results and events to be materially different from those expressed or implied by the forward-looking information.

The material factors or assumptions that we identified and were applied by us in drawing conclusions or making forecasts or projections set out in the forward-looking information, include, but are not limited to:

  • our ability to successfully implement and realize on our business goals and strategy;
  • government regulation of our business and the cost to us of such regulation, including the impact of government actions related to COVID-19; 
  • the economic and social impact, management, duration and potential worsening of the impact of COVID-19 or any other future pandemic;
  • factors and assumptions regarding interest rates, including the effect of Bank of Canada actions already taken;
  • the effect of supply chains issues;
  • the effect of inflation;
  • housing sales and residential mortgage borrowing activities;
  • the effect of household debt service levels;
  • the effect of competition;
  • systems failure or cyber and security breaches;
  • the availability of funding and capital to meet our requirements;
  • investor appetite for securitization products;
  • the value of mortgage originations;
  • the expected spread between interest earned on mortgage portfolios and interest paid on deposits;
  • the relative uncertainty and volatility of real estate markets;
  • acceptance of our products in the marketplace;
  • the stage of the real estate cycle and the maturity phase of the mortgage market;
  • impact on housing demand from changing population demographics and immigration patterns;
  • our ability to forecast future changes to borrower credit and credit scores, loan to value ratios and other forward-looking factors used in assessing expected credit losses and rates of default;
  • availability of key personnel;
  • our operating cost structure;
  • the current tax regime; and
  • operations within, and market conditions relating to, our equity and other investments.

The COVID-19 pandemic, external conflicts such as the Russia/Ukraine conflict and post-pandemic government and Bank of Canada actions taken, have resulted in uncertainty relating to the Company's internal expectations, estimates, projections, assumptions and beliefs, including with respect to the Canadian economy, employment conditions, interest rates, supply chain issues, inflation, levels of housing activity and household debt service levels. There can be no assurance that such expectations, estimates, projections, assumptions and beliefs will continue to be valid.  The impact the COVID-19 pandemic or any further variants or outbreaks, including measures to prevent their spread and related government actions adopted in response thereto, will have on our business continues to be uncertain and difficult to predict.

Reliance should not be placed on forward-looking information because it involves known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from anticipated future results expressed or implied by such forward-looking information. Factors that could cause actual results to differ materially from those set forth in the forward-looking information include, but are not limited to, the risks and uncertainties referred to in our Annual Information Form for the year ended December 31, 2021, our MD&A and our other public filings with the applicable Canadian regulatory authorities.

Subject to applicable securities law requirements, we undertake no obligation to publicly update or revise any forward-looking information after the date of this news release whether as a result of new information, future events or otherwise or to explain any material difference between subsequent actual events and any forward-looking information.  However, any further disclosures made on related subjects in subsequent reports should be consulted.

SOURCE MCAN Mortgage Corporation

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