The Canadian mortgage market slowed to its weakest growth rate in more than 25 years in 2018, according to a new report, as tighter lending regulations, rising interest rates and a softening real estate market weighed on property purchases.
The Canada Mortgage and Housing Corporation’s (CMHC) Residential Mortgage Industry Report, released Tuesday, also looked at alternative lenders, which have been on the rise in Canada with tougher lending rules in place.
According to the CMHC report, new mortgages for the purchase of property decreased by 19 per cent in 2018 compared to a year earlier. The report said the 2018 decline in mortgage originations is due to a combination of factors, including tighter underwriting and non-underwriting criteria, rising interest rates, and modest economic conditions. The report also said that changes in “behaviour factors” contributed to the decline in mortgage growth, which led to “softer demand on new home and resale markets in some major centres in Canada such as Toronto and Vancouver.”
Uninsured mortgages on the rise
At the same time, the report also found that the share of uninsured mortgages in Canada has been increasing, jumping from 29 per cent in 2016 to 35 per cent in 2018.
“The increasing shift to uninsured mortgages is partly a result of lenders and borrowers adjusting to regulatory changes, notably the 2016 stress testing for high-ratio mortgages, as well as changing economic conditions,” the report said.
“Homebuyers must meet stricter conditions in order to qualify for mortgage insurance... the implementation of the new eligibility criteria resulted in a decline in the demand for mortgage portfolio insurance.”
The report also found that more Canadians are turning to alternative lenders, which do not fall under the regulators watch in the same way that federally and provincially regulated financial institution mortgages do.
CMHC said that there were between 200 and 300 alternative lenders in Canada last year, holding 1 per cent of the outstanding mortgages in Canada, or between $13 billion and $14 billion of the total mortgage market. In 2017, alternative lenders held between $11 billion and $12 billion of outstanding mortgages, and in 2016 between $8 billion and $10 billion.
The range of lending rates from alternative mortgage corporations – usually for terms between six and 24 months – was between 7.3 per cent and 11 per cent. Banks, by contrast, offered 3.3 per cent to 5.3 per cent rates on terms that generally last several years.
While alternative lenders are in every province in the country, the report said they are more concentrated in B.C. and Ontario, with 78 per cent of lending concentrated in Vancouver and Toronto.
With files from the Canadian Press