There's still strong potential for business in a market that continues to evolve
The purchase side of the mortgage market may have dropped off significantly in 2022 – but renewals and refinances are set to play a big part in how things will shape up next year, according to a Toronto-based mortgage agent.
Christelle Mwamba (pictured), of Mortgage Scout, told Canadian Mortgage Professional that she would be placing a particular focus on that aspect of the business moving into 2023, with the issues of affordability and ensuring customers can handle a new rate set to remain top of mind.
That’s especially true with much uncertainty currently surrounding the direction the market will take next year, and the prospect that interest rates might begin to dip again in the second half, she said.
“Maybe instead of taking a five-year fixed rate now, [borrowers would be] better off taking a shorter term, a two-year or three-year, so that by the time the market stabilizes, they can renew again and have that lower rate,” she said.
“I want to focus on renewal and setting [clients] up right now in their affordability for this temporary recession that we’re going to be experiencing.”
What role will brokers and agents play for clients in 2023?
Mortgage agents and brokers will play a central part in helping Canadian borrowers map out the best strategy for their personal financial goals and savings plans in 2023, according to Mwamba.
“The key thing is: What is their long-term goal?” she said. “That’s key – understanding their renewal and why they want to renew for five years versus renewing for a three-year term. Maybe they want to buy another property in the future, or a secondary home.
“Before, you could have access to the equity of your house to buy another property. I think that’s really [important] to come back to your mortgage broker when your mortgage is coming up for renewal next year and asking for that advice, because you might actually be in a better place locking in a two-year or three-year versus going on a five-year.”
That’s also the case because after two years, the average borrower often starts rethinking their mortgage and whether they should switch – and signing up for a shorter term means the penalty for breaking a fixed rate will likely be lower than on a five-year term, Mwamba said.
A refinance can be a strong option because it’s generally cheaper than incurring debt on a credit card with sky-high interest rates. “Refinancing might be better than renewing at a lower term and consolidating all your debt for the temporary time where we have this recession,” she said.
“Instead of paying 20% on a credit card, you’ll pay 5.84% [for instance] which is still better for your saving, for your budgeting, and that’s the key thing during the recession. You want to budget, you want to set yourself up right now so that when the market picks up again, you’ll be set up well enough to go back and… buy.”
What’s the mortgage market outlook for 2023?
Indeed, while much has been made of the cooldown in sales activity throughout the year to date, Mwamba noted that the red-hot activity and rock-bottom rates of the first two years of the COVID-19 pandemic were an anomaly that was never going to last.
Speaking after the release of RE/MAX’s housing market outlook report for next year, Christopher Alexander told Canadian Mortgage Professional that there were positive signs on the house price front for the next 12 months despite recent economic headwinds.https://t.co/a6OwVCKsIj
— Canadian Mortgage Professional Magazine (@CMPmagazine) December 2, 2022
“Yes, the rates are really high right now – it’s a little bit scary. But I know that most lenders don’t want the mortgage to go into default, so it’s [necessary to] educate the consumers about what’s going on right now in the market, and the history.
“I think that when you understand where we were at before, and the cause of the fact that we had such a low-rate environment during the pandemic, [you realize] it’s a cycle.”
With that in mind, it’s necessary for agents and brokers to “hang in there,” Mwamba said, and eke out opportunity on the refinance and renewal side of the business as the market prepares for a down year.
While the market may be currently on the downward trend of the cycle, that’s not a situation that will last, she added – and finding the right strategy for borrowers can set them in good stead for when things start heating up again.
“I think the key thing for 2023 is setting up the borrower with the renewal so that they’re not afraid to enter the market when the market picks back,” she said, “and just looking at what term really is beneficial for you that’s going to work during this recessionary period that we’re going to be experiencing.”
