Let market decide, Conservative minister tells Flaherty on mortgage rates

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Conservative MP Maxime Bernier rises during question period in the House of Commons Tuesday March 19, 2013 in Ottawa. THE CANADIAN PRESS/Adrian Wyld

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OTTAWA - Not everyone in the Conservative cabinet is backing Jim Flaherty's latest intervention in the mortgage market.

Small Business Minister Maxime Bernier says he believes the finance minister overstepped his bounds by having his office phone Manulife Financial (TSX:MFC) and ask they withdraw their discount on five-year mortgages to 2.89 per cent from 3.09.

Bernier told reporters Wednesday he would not have done it.

"Me, personally, I would not dictate to businesses what prices to decide," he said.

"It's the market. It's supply and demand that decides the prices. It is the case for interest rates, it is the case for other products too."

In the House of Commons later, NDP Leader Tom Mulcair questioned which minister — Bernier or Flaherty — speaks for the government.

"Which minister has the prime minister's confidence, the minister of small business or the minister of finance?"

Prime Minister Stephen Harper did not respond directly but did appear to echo Flaherty's justification for intervening.

"The fact is mortgage rates are lower than they've ever before been in Canadian history under our government," Harper told the Commons.

"At the same time, we want to ensure that mortgages remain affordable and stable and that the market stays stable and affordable in the long run for Canadian families."

Flaherty first came under attack Tuesday from opposition leaders who accused him of interfering with decisions of private businesses acting under the rules he set and of making it more expensive for Canadians to purchase a home.

In a statement, Manulife said it had restored the higher rate "after consulting with the Department of Finance."

It was not the first time Flaherty has intervened in the financial sector.

Earlier this month, the minister personally phoned the Bank of Montreal (TSX:BMO) to complain about its decision to lower the five-year rate to 2.99 per cent. BMO did not reverse its position after the call and the rate remains unchanged.

Interim Liberal leader Bob Rae said he believes Flaherty has violated the Competition Act, which prohibits anyone from counselling a restriction on competition.

"It sounds to me like that's what he's doing," Rae said.

"We either have a competitive mortgage market or we do not. And it's clear to me that Mr. Flaherty would prefer to have a cartel where ... he and his officials are setting the interest rates for every mortgage in this country."

In Toronto, where he was trying on new shoes to wear for delivery of Thursday's budget, Flaherty made no apologies for his intervention. He insisted he was acting to protect consumers.

"My concern for a number of years with very low mortgage rates is to ensure people can afford their mortgages when interest rates go up," he said.

"It's a concern for the Canadian people that they are careful and that they don't assume the very low interest rates like we have now will continue indefinitely because they won't. Inevitably, interest rates will go up."

But Rae said it's "completely inappropriate" to counsel "fixing" of interest rates. He argued Flaherty is confusing "credit worthiness" with the mortgage rates Canadians should be paying.

"Credit worthiness is a legitimate concern of everyone ... in saying, should we be lending money to Mr. or Mrs. X because either they have too much debt or they don't have enough income (to pay it back)," Rae said.

"But the quid pro quo for that is to say the government should keep its hands off, should keep its mitts away from telling ... any financial institution what price they should be charging for the products that they're offering. That has nothing to do with credit worthiness."