First National Financial LP

Jason Ellis comments on the mortgage market at Canada’s largest conference of industry professionals

  • First National Financial LP


From October 16 to 17, 2022, Mortgage Professionals Canada hosted its first in-person national mortgage conference since 2019. One of the breakout sessions featured leading lending experts describe the characteristics and complexities of the current mortgage landscape and lending regulation. Here are some of the key observations made by First National’s President and Chief Executive Officer, Jason Ellis.


While higher interest rates are creating market headwinds, there are also reasons for optimism including demographics that are positive for the housing and mortgage lending industries. In particular, many Canadians need homes and there is not enough housing stock, household income has grown significantly as has home equity in the past 5 years, and employment has remained strong.

Bond markets are generally expecting a 50-basis point increase in the Bank of Canada rate on October 26 and another 25-basis point increase on December 7. However, it is conceivable that the increases come in at 75 basis points this month and 25 basis points in December.

It probably won’t be long before everyone becomes accustomed to higher interest rates. This will cause the housing market to reset as the Bank of Canada concludes this round of rate tightening.

At First National, the rate of borrower conversion from an adjustable rate to a fixed rate mortgage has increased in recent months from a normal level of 3 to 4% annualized. This year, borrower inquiries spiked when the Bank of Canada moved its policy rate up. However, only about one in three First National borrowers who inquired chose to convert. Consequently, the conversion rate grew to 6 to 7% annualized – lower than many forecasters expected.

It is possible that borrowers are now deciding to remain with an adjustable mortgage on the assumption that the Bank of Canada is almost finished raising rates. This line of thinking speculates that fixed rates may decline in future to provide a better entry point to a fixed mortgage.

While unpopular when introduced in 2016, the mortgage stress test was a good idea. It’s tough to say the test has been effective, but the policy was appropriate since interest rates at the time were historically low. Now that Canada is in a new interest rate environment, the question needs to be asked if the policy should change to become more dynamic based on lessons learned.

Mortgage rates are sticky because of fierce competition in the marketplace. As the cost of funds moves up, lenders often find their profit margins tighten until one competitor blinks and chooses to push their mortgage pricing up. While margin management is always important to First National, so too are the fundamentals of good customer service.

It’s more important than ever for First National and mortgage brokers to work together. Borrowers clearly face more uncertainty and are asking more and more questions. This is our opportunity to deliver advice-based help to borrowers and in so doing, ensure they can get the mortgage they can best afford.

First National is always looking for opportunities to broaden its markets. This will continue as will our fierce focus on providing great service to mortgage brokers and borrowers.