The feds rained on the mortgage parade with stricter qualifying rules last year. That was followed by three interest rate hikes from the Bank of Canada.
With those inhibiting factors, it’s pretty clear why residential mortgage growth fell off a cliff in 2018.
This year started slow as well. There were just $60.26 billion of new mortgages originated by Canada’s chartered banks in the first six months of 2019, according to data from the Canada Mortgage and Housing Corporation (CMHC). That’s down from $64.93 billion in the prior year’s first half, and well below the $79.57 billion of mortgages originated in first-half 2017.
CMHC’s report also shows a big drop in refinances with the same lender—down 14.5% in the first half of this year, compared to the same period in 2017 (before the banking regulator’s momentous mortgage “stress test”).
What didn’t fall—at least compared to pre-stress test period—were renewals with the same lender. Those were up a whopping 36%. How much of that is due to the stress test trapping people with their existing mortgage/lender is hard to say, but it was a factor.
Two other factors cited by CMHC are tighter approval criteria and limited growth potential of new business.
CMHC also found that the approval rate for same-lender renewals remained stable at 99%, “showing almost all renewal applications are approved.” Renewals with the same lender are not subject to the stress test and are therefore more likely to meet current lender criteria.
The stress test on uninsured mortgages, which hit the market on January 1, 2018, spoiled the plans of as many as 18% of potential buyers, according to a report from Mortgage Professionals Canada. Of those, it’s estimated that at least 40% were no longer able to qualify for a mortgage at all.
BACKGROUNDER: For more details, see What is the Mortgage Stress Test?
Times They May Be Changin'
With home sales regaining strength this fall, mortgage activity is already starting to bounce…noticeably.
“I would be very surprised if we don’t see a moderate rebound in the second half of 2019 and into early next year,” Douglas Porter, chief economist with BMO, told The Globe and Mail.
It doesn’t hurt that average home prices are up 5.3% year-over-year, according to CREA.
In Other News: Banks Hold 75% of Outstanding Mortgages
Dozens of lenders are vying for your mortgage business, but banks still hold the overwhelming majority of mortgages, says CMHC.
To be precise, banks currently hold three quarters (75%) of outstanding mortgages. The next largest share is held by credit unions and caisses populaires at 14%, followed by mortgage finance companies (MFCs) at 6%.
CMHC also found that the MIC market, estimated at $13 billion in 2018, is expanding faster than any other lender segment. It grew 10 percent compared to just 2% for the rest of the market.
What’s more, “Despite an increasing appetite for second mortgages, this [MIC] segment is showing improvements in its loss ratios,” CMHC added. That’s good to hear, but the real test will be how MICs perform through the next recession.
Additional Semi-Fun Facts
The report had other mortgage stats of note for data geeks. Here’s an overview:
Banks
- Average outstanding mortgage amount: $235,300
- Interest rate range: 3.25 to 5.55%
- Delinquency rate: 0.23%
- As of 2018, 16% of all active mortgages held by chartered banks in Canada had a loan-to-value ratio greater than 80%
- Half of all loans, however, had an LTV of 65% or less. Mortgages with at least 35% down get the best rates of all, second only to default-insured mortgages
Credit Unions / Caisse populaires
- Average outstanding mortgage amount: $151,900
- Interest rate range: NA
- Delinquency rate: 0.16%
MFCs
- Average outstanding mortgage amount: $247,200
- Interest rate range: NA
- Delinquency rate: 0.26% (MFCs used to outperform banks in arrears, not anymore apparently)
MICs / Private Lenders
- Average outstanding mortgage amount: Unknown
- Interest rate range: 7-15%
- Delinquency rate: 1.92% (eight times higher than banks; hence the high rates)
