Here are five predictions for the Canadian mortgage market in 2025, based on current trends and analysis:
1. Loan-to-Income (LTI) Ratios will be a Key Factor
Loan-to-income ratios will become increasingly important in determining mortgage eligibility and affordability. As interest rates rise, borrowers will need to demonstrate higher income or lower debt levels to qualify for mortgages. This will lead to a greater emphasis on LTI ratios in underwriting decisions.
2. Switch Volumes will Surge
With many Canadian mortgagors facing payment shock when their mortgages come up for renewal, there will be a significant increase in mortgage switching activity. Borrowers will comparison shop rates more aggressively and take advantage of new rules that permit borrowers to switch lenders without having to pass the federal mortgage stress test.
3. Cross-Selling will Drive Rate Competition
Deposit-taking lenders will continue to offer fatter mortgage discounts in hopes of cross-selling other financial products, such as savings accounts, credit cards, and investments. This trend will put a competitive squeeze on lenders that don’t have other financial services to sell (a.k.a. "monoline" lenders).
4. Debt Loads Will Continue to Rise
Despite declining debt-service ratios, non-mortgage debt loads, such as those from credit cards and auto loans, have ballooned year-over-year. This will lead to a greater number of debt-laden consumers seeking cheaper digs, often requiring longer commutes.
5. Interest Rates Remain a Wildcard
Interest rates remain the grand puppeteer of mortgage demand in 2025. With rates expected to rise, borrowers will need to navigate increasingly complex mortgage landscape and consider non-traditional financing options. Only one thing is certain: 2025 will bring plenty of surprises for Canadian mortgagors.
Why These Predictions Matter
These predictions have significant implications for Canadian mortgagors, lenders, and policymakers:
- Borrowers must be prepared for a more complex mortgage landscape and increasing scrutiny on LTI ratios.
- Lenders need to adapt their strategies to remain competitive in a market driven by cross-selling and rate competition.
- Policymakers will face pressure to address concerns around affordability and debt loads.
Conclusion
The Canadian mortgage market is poised for significant changes in 2025. Borrowers, lenders, and policymakers must be prepared to navigate the challenges and opportunities presented by these trends. By understanding the factors driving change, Canadians can make informed decisions about their mortgages and financial futures.
