Mortgage loans in Canada declined in 2018 due to new mortgage regulations, rising rates and softening housing markets, according to Canada Mortgage and Housing Corp.’s first Residential Mortgage Industry Report.
“Over the last year, activity in the Canadian mortgage landscape slowed after many years of strong increases, which had been driven by rising housing prices and strong sales in the residential real estate market,” said the report.
“In 2018, the decline of new mortgages resulted in the slowest year-over-year growth rate of outstanding mortgages in over 25 years. In the first quarter of 2019, residential mortgage debt has maintained a slower pace at 3.4 per cent. The decrease in activity in 2018 can be attributed to a combination of factors, including tighter underwriting criteria and non-underwriting criteria, increased borrowing costs, modest economic conditions and to some extent changes in behavioural factors, which have induced softer demand on new home and resale markets in some major centres in Canada such as Toronto and Vancouver.
“More specifically, housing starts reached 212,8431, a three per cent dip below the 10-year high of 2017. In parallel, the resale market recorded an 11.1 per cent drop compared to the previous year, settling at 458,442 MLS sales. As a result, house prices decreased to an average of $488,699 in 2018, a 4.1 per cent decrease from the previous year, leaving MLS average prices slightly below their 2016 level.”
New mortgages for purchases of properties and refinances with same lenders decreased in 2018.
“Growth in residential mortgage credit is derived from different sources, including new residential property purchases and refinancing of loans, which consist of renegotiating terms on existing mortgages, typically for a larger amount. In 2018, new purchase loans and refinances accounted for approximately 36 per cent and 17 per cent respectively of residential mortgage loan originations amongst chartered banks,” said the CMHC.
“Renewals of loans at the end of their term also contribute to maintaining the amount of the financial institutions’ residential mortgage portfolios. Renewals are a time when consumers with existing mortgages may switch their business to other institutions and when lenders will make efforts to retain their own and attempt to attract borrowers from their competitors. In 2018, loans extended for both the purchase of a property and refinances by the same lender recorded decreases of 19 per cent and 12 per cent respectively compared to 2017. Meanwhile, renewals with the same lender increased by 16 per cent relative to the previous year and now count for close to one out of 2 loans extended. Mortgage switches between institutions, which include refinances and renewals with a different lender, are estimated at approximately six per cent of all transactions and increased by 28 per cent in 2018 compared to the same period in 2017.”