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Residential Market Commentary – The key reason for the decline of new mortgage loans

  • First National Financial LP

A new report from Canada Mortgage and Housing Corporation confirms what we have all suspected: there were fewer mortgages taken out in 2017 compared to 2016.  The key reason for the decline suggests 2018 will see more of the same.

Using data from credit monitoring agency Equifax, CMHC reports just shy of 960,000 new mortgage loans in 2017, down 6.5% from 2016.

Of the five categories of borrowers examined, the biggest decline in new mortgages was a 17.5% drop among homeowners who renewed with a new lender.  This suggests: homeowners may not be shopping around for renewals the way they do for their initial mortgage; lenders are offering attractive terms to retain clients; the terms and conditions for moving to a new lender are too onerous.

The only category to see an increase in new mortgages was multiple mortgage holders which rose to 15.1% from 13.6% in 2016.  An analysis of CMHC figures by the real estate website Better Dwelling suggests more than 15% of new mortgages were taken out on properties that have an existing mortgage, up nearly 5% from 2016.

CMHC cites the 2016 rule changes for high-ratio mortgages as the key reason for the decline.  All mortgages with a down payment of less than 20% would have had to qualify at the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate.

Given the 2018 rule changes that imposed a similar stress test on all mortgages, and the rising interest rate environment, it stands to reason there will be further declines this year.