Interest rates may be on the way down, but putting together a successful application remains a daunting task for many hopeful buyers
Interest rates may be on the way down on both the fixed and variable sides at the beginning of the year, but affordability and qualification hurdles are continuing to keep many hopeful homebuyers on the sidelines in Canada.
The housing market set off on a recovery path in 2024, Royal Bank of Canada (RBC) said in a recent report, although bumps along the way are expected to continue – not least in Ontario and Vancouver, where “intense affordability strains” remain a major impediment to buyers.
Rising debt levels and the overall cost-of-living are still squeezing plenty of budgets, Mortgage Advisors broker and co-owner Christa Tessier (pictured top) told Canadian Mortgage Professional, with limited savings and higher debt-to-income ratios leaving many mortgage shoppers struggling or unable to meet lender requirements.
That’s a familiar challenge for mortgage professionals grappling with the best way to help their clients get applications over the line in a lending environment that’s been fraught since rates started a sudden upward climb in 2022.
Good habits need to begin well before application starts: broker
Taking the time to prepare and iron out the application, Tessier said, is especially important in the current market – and that means brokers guiding clients to strengthen their financial profile well in advance of applying. “Borrowers should focus on reducing debt as much as possible and maintaining good credit habits such as paying bills on time and keeping credit utilization low,” she said.
“It’s also essential to rein in unnecessary spending and create a budget that reflects the financial reality of homeownership. Saving diligently for a downpayment, closing costs, and a financial cushion can make a significant difference.”
Coaching clients to adopt those practices, she said, is a key step for brokers whether clients are ready to apply now or hoping to do so months down the line.
That also means counselling borrowers against overextending themselves on credit, which impacts both their debt-to-income ratio and ability to handle unexpected expenses when they’ve gotten their home purchase over the line.
Borrowers can sometimes underestimate the close attention lenders pay to their overall financial health, Tessier said, meaning maintaining good credit and avoiding new credit obligations is doubly important before applying.
The increasingly complex lending landscape, meanwhile, means a common misstep for brokers is not taking the time to become familiar with lender guidelines and exceptions. “Knowing how to package a deal properly is important, and this includes understanding which lenders are more flexible on certain criteria, how to calculate usable income accurately, and when to extend ratios based on a client’s overall profile,” Tessier said.
“Failing to align a client’s application with the right lender’s requirements can lead to unnecessary declines and delays.”
Will the outlook improve for Canadian homebuyers in 2025?
The Bank of Canada’s decision to cut its benchmark rate by 25 basis points on Wednesday, a sixth consecutive reduction, was welcome news for variable mortgage shoppers – while fixed rates have also tumbled in the early weeks of the year.
The Bank of Canada has lowered its benchmark rate again, making a sixth consecutive cut amid continuing signs of a slowing economy and falling inflation.https://t.co/6jFcMGUVqU
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 29, 2025
It’s unclear whether the central bank will continue to slash rates throughout 2025, with much seemingly depending on whether US president Donald Trump’s threatened tariffs on Canada come into play.
That could impel the Bank to continue cutting more than it had originally envisaged, according to Bank of Montreal (BMO) chief economist Doug Porter.
Rates stabilizing or falling further could help boost affordability for Canadian borrowers, Tessier said, while new programs, including expanded access to 30-year amortizations and a higher insured mortgage cap, may also play their part in improving the overall homebuying picture.
Still, home prices aren’t expected to tumble this year – and that will keep affordability challenges front and centre for many buyers. “Much depends on whether home prices remain stable or continue to rise,” Tessier said.
“If property values grow faster than incomes, it could counteract some of these measures, making it a mixed picture for borrowers in 2025.”
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