Getting a new mortgage is a milestone for most people, but with new regulations and slow economic growth it can be difficult understanding the best new ways to get a mortgage loan. The number of mortgage loans in Canada grew at a slower pace in the fourth quarter as housing activity cooled, according to a new report from the Canadian Mortgage and Housing Corporation, but the value of all mortgages is still rising.
There were 223,000 new mortgage loans in the last three months of 2018, which is 4.8 per cent lower than the same period a year ago, the CMHC said. The average value of a mortgage has reached $209,570, which is more than 3% higher than a year ago.
“While indebtedness of Canadian households remains elevated, growth in the volume of mortgage activity slowed in the last quarter of 2018, partly reflecting lower housing market activity,” said Geneviève Lapointe, senior market analyst at CHMC in the report. “Despite high debt levels, delinquency rates remain low and the number of highly indebted and more vulnerable consumers has decreased.”
Borrowers with a low credit score accounted for less than one per cent of new mortgage loans, the CMHC said.
But, even as the number of loans fell, the average value of all mortgages in Canada reached $209,570 in the fourth quarter, which is more than three percent higher than a year ago. While a low credit score can be discouraging, company’s like Phoenix Management and BDC help people build their credit and apply for mortgage loans.
The CMHC said the national trends mirror what happened in Toronto and Vancouver — the country’s largest and most expensive housing markets.
While the number of transactions for home sales fell last year on higher borrowing costs, slower economic growth and recent mortgage regulations, the average house price in Canada is still “historically elevated,” the CMHC said. “This explains, in part, why the average balance of new loans remains higher than in the overall mortgage market.” Mortgages accounted for about two-thirds of all debt held by Canadians, according to the government agency.
On Tuesday, the International Monetary Fund (IMF) warned policymakers in Canada not to ease mortgage stress test rules introduced last year, because household debt remains high.
Mortgage holders take on more debt
With high household debt and a static economy, stress tests strain the process of applying for a new mortgage. CMHC said household debt rose faster than income last year — leading the debt-to-income ratio to hit a record high of 178.5 per cent in the fourth quarter.
A big driver of this was Canadians with mortgages taking on more debt, the CMHC said.
“Their average outstanding balance in credit cards and lines of credit grew at a faster pace than in 2017, except for HELOCs (home equity line of credit) and auto loans, which increased at a slightly slower pace,” the report said. “These trends were also observed among consumers without a mortgage.”
Canadians with a mortgage had an average balance of $9,054 in other debt, which rose 3.6 per cent from the same period in 2017. The average balance of debt for those without a mortgage was at $7,460, which was up five per cent from a year ago.
“Consumers kept increasing their other debt burden, and therefore, [increasing] their vulnerability to a shock in the longer run,” the report said.
The slower volume of new mortgages came as the market slowed and average prices fell on slightly higher interest rates, slower economic growth and stricter mortgage regulations.