The Crown corporation's latest report had significant news on alt-lending and racial inequality in the mortgage market
A recently published report by the Canada Mortgage and Housing Corporation (CMHC) shone a light on some of the main recent trends developing in Canada’s mortgage market, including a continuing decline in alternative borrowers with an effective exit strategy in place and ongoing race disparities in homeownership rates.
The Crown corporation’s Residential Mortgage Industry Report, a biannual study of mortgage trends in Canada, revealed that while a clear majority (72%) of alternative borrowers have a viable exit plan, that trend has been decreasing over the past decade.
Around 80% of Canadians with an alternative mortgage had an effective strategy between 2006 and 2015, CMHC said. It attributed the decline since then to stricter regulation and more stringent underwriting standards that it said made it more difficult for borrowers to switch to a conventional lender at term.
Tania Bourassa-Ochoa (pictured top), senior specialist, housing research at CMHC and one of the report’s authors, told Canadian Mortgage Professional that rising interest rates could present a further challenge to those who wish to secure an effective exit strategy in the current climate.
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“What we’re seeing in the past few years [is that] all of the tightening regulations on the conventional side are probably one of the reasons that it’s harder for some of the borrowers to go back to the conventional lending space,” she said.
“So it’s going to be interesting to see… in the context of interest rates rising, maybe it may be a little bit more difficult in the future for some of these borrowers to get back into the conventional lending space.”
Mortgage delinquencies in Canada are currently at a record low compared with data that’s been available since the early 1990s, although Bourassa-Ochoa added that mortgages are often a “lagging indicator” where delinquencies are concerned – meaning that it will likely only become apparent further down the road if Canadians are struggling to pay their mortgages.
The report also indicated that Indigenous, Black, Arab, and Latin American populations in Canada have much lower homeownership rates than the national average, and that recent immigrants who arrived within the last seven years are less likely to own a home than established ones.
The survey’s findings on racial disparities in homeownership rates in Canada revealed some worrying trends, according to Bourassa-Ochoa.
“Black, Arab, Latin American Canadians, and Aboriginal people do have low homeownership rates. And also, one of the things that’s important to highlight is that the gap has also increased,” she said. “The other one is also that when we look at recent immigrants and established immigrants, recent immigrants also have a lower homeownership – more specifically, when looking at Black, Arab, and West Asian [newcomers].
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“So it really suggests that a segment of the population has maybe a little more trouble accessing the financial system in the early years of their arrival in Canada, for sure.”
Residential mortgage debt continued to surge across Canada throughout 2021 amid a continuing low-rate environment, with CMHC revealing that it had climbed by 9% over the previous year – “the result of strong activity in the housing market and the record-low interest rates.”
As those interest rates plummeted throughout the pandemic, Canadians’ interest in variable-rate mortgages soared, a development that will come as little surprise to mortgage professionals across the country. CMHC said that the increasing discounts on those options contributed heavily to their popularity.
That was a particularly noteworthy trend, Bourassa-Ochoa said, because variable-rate options have traditionally not been the preferred choice of mortgage for a majority of Canadians.
“What’s really interesting about that is that, historically speaking, Canadians generally tend to opt for a five-year fixed rate,” she explained. “The discount being so large, what we saw in the second half of 2021 was that Canadians that were either renewing their mortgage or that were taking on new mortgages were actually opting in a majority for variable interest rates.”
Fifty-three per cent (53%) of Canadians shifted their preference to variable-rate mortgages in the second half of last year, the survey revealed, compared with 34% in the first half. Still, the authors also emphasized that while the trend continued into early 2022, recent rate hikes seem to have cooled much of that interest, and that it appeared to have already “plateaued.”
