Mortgage Growth Slows, Alt-Lender Share Grows: CMHC

Canada’s mortgage market grew by its slowest pace in more than 25 years in 2018, according to new data released by the Canada Mortgage and Housing Corporation.

At the same time, the share of the market controlled by alternative lenders—which typically lend to riskier clients and charge higher interest rates—grew from the previous year.

“This decline in new mortgage activity is due to a combination of factors, including tighter underwriting criteria and non-underwriting criteria, increased borrowing costs, modest economic conditions and to some extent changes in behavioural factors, which resulted in softer housing demand in some major centres in Canada such as Toronto and Vancouver,” reads CMHC’s inaugural Residential Mortgage Industry Report.

The data shows new mortgages for the purchase of property were down 19% in 2018 compared to the previous year and that refinances were down 12%.

The report also found renewals with the same lender were up 16% compared to the previous year and now account for 41% of all mortgages.

“…the approval rate for same-lender renewals remained stable at approximately 99%, showing almost all renewal applications are approved,” the report said. “Renewals are not specifically subject to the new stress test and are more likely to meet current lender criteria.”

The report failed to mention, however, that renewals with other lenders (switches) are subject to the stress test rules, which likely had an impact on the higher lender retention rates.

Use of Alternative Lenders Increasing

The data also showed an increase in market share for alternative lenders, which rose to 1% of the Canadian mortgage market.

That translates into $13–14 billion worth of outstanding mortgages held by between 200 and 300 active alternative lenders, CMHC said. That’s up from $11–12 billion in 2017 and $8–10 billion in 2016.

The report also pointed out that while alternative lenders operate across the country, they are more concentrated in Ontario and B.C., with the far majority (78%) operating in Toronto and Vancouver.

Comparatively, Mortgage Investment Corporations (MICs) held 1% of outstanding mortgages, mortgage finance companies held 6%, credit unions held 14%, and federally regulated financial institutions (which includes banks), held the remaining 78% of outstanding mortgages.

Rise in Uninsured Mortgages

CMHC reported that more Canadians are taking uninsured mortgages, with their share rising to 35% in 2018 from 29% in 2016. At the same time, the share of insured mortgages has dropped to 41% in 2019 from 57% in 2015.

“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,” CMHC noted. “Homebuyers must meet stricter conditions in order to qualify for mortgage insurance. Changes to the portfolio insurance program have also impacted the relative size of the insured mortgage space.”

Other Key Stats

The report contained a treasure trove of additional data. Here are some of the highlights:

• $488,699: The average home price in 2018
  • Down 4.1% from the previous year

Interest Rates

• 3.30%: The average 5-year fixed rate secured in 2018
  • 29.2%: The share of new mortgages that were 5-year fixeds
• 3.15%: The average variable rate secured in 2018
  • 27.6%: The share of new mortgages that were 5-year variables (this increased to 29% as of the first quarter of 2019)
  • 44%: The share of overall mortgages that were 5-year variables (well above any other point in the past five years)
• 29 bps: The discount on variable rates vs. 5-year fixed rates originated at the same period (2018)
  • In 2016, the rates for 5-year fixed and 5-year variables were practically the same. Similarly, as of February 2019 the discount narrowed again to just 2 bps.
• “The larger discount offered on variable rates in 2018 partly reflected both expectations of rising interest rates and increasing efforts to attract new borrowers as the housing market began to slow down,” CMHC noted.

Mortgage Default Insurance

• 42%: Percentage of mortgages that were insured as of Q1 2019
  • Of these, 58% were high ratio, 9% were low ratio and 33% were portfolio insured

Share of Loan-to-Value

• 65% or less LTV: 49% of residential mortgages
• 65.01–75% LTV: 19%
• 75.01–80% LTV: 16%
• 80.01–85% LTV: 4%
• 85.01–90% LTV: 4%
• 90.01–95% LTV: 8%

Mortgage Values at Origination

• 35%: Percentage of uninsured mortgage originations with values of $500,000 and over (2016)
• 34%: Percentage of mortgage originations with values of $250,000 or less (2016)
  • Now 28% in 2019