Fresh data could signal the end of Canada’s mortgage borrowing spree

Higher interest rates and new lending rules have curbed Canadians’ appetite for taking on mortgage debt, a new report suggests.

Higher interest rates and new lending rules have curbed Canadians’ appetite for taking on mortgage debt, a new report suggests.

According to credit-rating agency TransUnion Canada, the number of mortgages originated across the country in the third quarter of last year fell 12.9 percent from the same period in 2017.

The steepest decline was in BC, where originations collapsed 26.5 percent as the Vancouver housing market continued to correct, while Canada’s most active province for home sales, Ontario, saw originations drop 16.2 percent.

Only in Quebec did mortgage originations rise. The number of originations increased by 1.6 percent as Montreal’s housing market bucks a national trend and picks up steam.

“It is clear from the data that mortgage originations have slowed materially,” said Matt Fabian, TransUnion’s director of financial services research and consulting. “Consumers seeking to purchase new homes may find obtaining financing both more difficult and more expensive in the current environment,” Fabian continues.

The average new mortgage amount also dropped 3.6 percent annually in the third quarter to $280,700. TransUnion speculates the decline could partly be the result of homebuyers switching their focus in terms of housing type and area. Affordability challenges in Canada’s biggest markets have led to increased demand for condos, for example. Buyers might also be looking to lower-priced areas.

“It may also be driven to some extent by the new mortgage qualifying rules, as many consumers will qualify for lower mortgage amounts and may need to either seek smaller homes or provide larger down payments as a result,” the report reads.

The Bank of Canada has hiked its policy rate, which influences the mortgage market, five times since July 2017, translating to higher borrowing costs for mortgage holders. Together with expanded mortgage stress testing, the moves were meant to cool a national housing market’s run up that had been bolstered by cheap credit.

Still, borrowers have generally kept on top of their monthly payments. Serious delinquency rates are down 0.45 percent, according to TransUnion.

“The fact that consumers with mortgages today are continuing to perform well and make timely payments speaks well of both lender underwriting practices in recent years and the focus consumers are placing on managing this largest component of debt in the wallet,” says Fabian.

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