Why were so many borrowers renewing with the same lender last year?

According to a Canada Mortgage and Housing Corporation analysis, mortgage renewals with different lenders in Toronto declined dramatically in 2017 compared to the year before

By Neil Sharma

16 Aug. 2018

According to a Canada Mortgage and Housing Corporation analysis, mortgage renewals with different lenders in Toronto declined dramatically in 2017 compared to the year before.

Tania Bourassa-Ochoa, a senior economic researcher with CMHC, theorizes that the 25.7% decline can be attributed to the B-20 rule changes in 2016.

“One of the reasons that could partially explain this is the mortgage rule changes in 2016,” Bourassa-Ochoa told MortgageBrokerNews.ca. “There was the stress test mortgages had to go through, but the problem is we’re not able to confirm this because we’re unable to observe the number of renewals with the same lenders. It’s hard to know if it’s really because of that.

“When you look at all of the major markets and you see the two most expensive markets in Toronto and Vancouver, that’s where the largest declines of renewals with different lenders was observed.”

While it is difficult to discount the role stress testing mortgages play in cooling activity—as well as the fact that lenders aren’t competitive with renewal rates to begin with—there could be another explanation for why so many borrowers decided to remain with their lenders.

“Historically speaking, lenders aren’t that competitive on renewal, especially if you look at 2016 to 2017 when they would come out with a subpar rate at best,” said Benjamin Sammut, a Mortgage Architects broker. “The only thing I can think of is they’re upping their game and starting to be a little more competitive in what they’re offering in terms of rate, and they’re probably contacting their clients a little earlier. What used to be 90 days out has turned into a 180 days out. We’ve even heard of instances where clients are being told a year in advance that they could do an early renewal.”

The decline in renewals with different lenders is confounding, though, because lenders don’t incent borrowers to stay with them.

“If they’re incentivized somewhere else and they can get the exact same product somewhere else, then they’re usually more inclined to do that,” said Sammut. “It’s like looking at Bell and Rogers: They’re the exact same product, but it’s a question of who’s going to screw you less.”

The CMHC analysis of Equifax data also determined that refinances declined in 2017 compared with a year earlier, and it’s likely because fewer homeowners were willing to leverage their properties, which is consistent with the decelerated price growth in some of the country’s major markets at the time.

“The only explanation I can think of is you have borrowers seeing a stricter environment,” said Bourassa-Ochoa. “People wanted to see what would happen because of the threat of rate increases and stricter and stricter regulation. They probably just wanted to hold off, and that included refinances for debt consolidation, renovations to their home or changing lenders and increasing the amount borrowed.”