Decline in New Mortgage Loans Across Canada
An in depth review of recent consumer credit reports done by the Canadian Mortgage and Housing Corporation (CMHC) indicates that the amount of new mortgage loans in Canada has gone down compared to 2016.
The types of new loans analyzed were:
1. New Owners
Consumer did not have a mortgage in the previous quarter, but does have one in the current quarter.
2. Repeat Buyers
Consumer had a mortgage in the previous quarter and current quarter, but the address has changed.
Consumer had a mortgage in the previous quarter, opened a new mortgage in the current quarter, address remained the same, mortgage balance increased by greater than 10%, and number of mortgages remained the same.
4. Renewals (with new lender only)
Consumer had a mortgage in the previous quarter, opened a new mortgage in the current quarter, address remained the same, mortgage balance remained the same or was lower or increased by less than 10%, and the number of mortgages on the report remained the same.
5. Multiple Mortgage Holders
Consumer had a mortgage in the previous quarter, opened a new mortgage in the current quarter, address remained the same, total mortgage balance increased by more than 10% and the number of mortgages on the report increased.
It is important to note that renewals with the same lender are not included in the report.
CMHC Report Findings
Across Canada there were 959,074 new mortgage loans in 2017. Compared to 2016, new mortgage loans went down by 6.5%. The largest decline in new mortgage loans was found in the renewal with a new lender category.
Refinancing faced the second largest decline, with a drop in 8.3%. CMHC suggests that this may be due fewer and fewer homeowners wanting to leverage their property.
New Mortgage Loans in Canada Breakdown
In 2017, 40.3% of new mortgage loans in Canada were associated with new owners (often new home buyers). This is actually higher than in 2016, but slightly lower than in 2015.
The second largest group of new mortgage loans were refinances. Refinances made up 21% of new mortgage loans in 2017. This is a slight drop from the previous year.
Consumers with multiple mortgages made up 15.1% of new mortgages in Canada in 2017. This is an increase of about 1.5% from the previous two years.
Decreasing from 2016, in 2017 14% of new mortgage loans were renewals with a new lender.
The smallest portion of new mortgage loans in Canada was for repeat buyers. Only 9.6% of new mortgage loans were for repeat buyers. This number has remained basically unchanged over the past three years.
What Caused the Drop in New Mortgages?
The drop in new mortgages across Canada could be explained by the new mortgage rules introduced in 2016. At the time the new mortgage rules were rolled out, all mortgages with less than a 20% down payment would need to qualify at the greater of the contract rate or the Bank of Canada benchmark rate. Considering the Bank of Canada’s benchmark rate is much higher that what consumers can typically negotiate with a lender, the new rules caused a significant drop in borrowing capabilities.
Vancouver: Largest Drop in New Mortgages Across Canada
In all of Canada, Vancouver is the city with the highest decline in new mortgage loans. As one of the most expensive markets in the country, this does not come as a surprise for most. CMHC reports that housing sales dropped as soon as the foreign buyers tax was introduced, indicating this could be a large factor in the weaker market activity.