As the Canadian housing market slows, affordability remains a concern for consumers. The number of first-time homebuyers continues to decline, and more mortgage payment shocks are potentially on the horizon. Below are the mortgage market trends and questions that lenders should be considering.

 

Canadian Mortgage Market Trends
 

The housing market continues to slow, with new mortgage originations plummeting by 42 per cent compared to Q1 2022 — the lowest volume witnessed since 2014. Nonetheless, there are still signs that it is a seller's market, as housing demand remains greater than supply.

The percentage of first-time homebuyers is declining as home affordability remains a concern. With higher interest rates, qualifying for a mortgage has become more challenging for this group.

With close to 750k mortgages expected to renew in the next 12 months, many consumers are at high risk of a payment shock, which can impact their financial position. An estimated 10 per cent of mortgage customers could see a renewal-triggered payment shock in the next 12 months.
 

Mortgage Growth has Slowed

 

At the end of Q1 2023, mortgage debt was 5.1 per cent higher than in Q1 2022; however, this is the lowest mortgage debt growth rate since 2018. There are three core drivers of reduced mortgage growth:

1. A reduction in the volume of new mortgages

2. A decline in average home price and mortgage amount

3. A decrease in first-time homebuyers and refinancing activity

The latest Equifax Canada data reveals an increasing number of mortgage holders missing payments on non-mortgage products, reflecting a 15.7 per cent increase from Q1 2022. Closely monitoring consumer credit activity and behavioural changes will be critical for lenders in finding early signs of financial stress, such as missed payments.

"While interest rates and the cost of living remain high, we expect to see more groups of consumers experiencing financial difficulties over the coming months. It will be important for consumers to monitor and anticipate these escalating costs to help them weather the storm," advises Rebecca Oakes, Vice-President of Advanced Analytics at Equifax Canada.

 

What Lenders Should Be Thinking About

 

To manage risk and renewals, lenders can segment their portfolios and focus on consumers with upcoming renewals to understand their full financial positions. Information can include the total debt, cash flow, and capacity of a consumer, which can be essential to understand who may be at risk of a payment shock. Adjusting strategies to support consumers will be key. Below are some questions that lenders should be thinking about:

• Who in your portfolio is at risk of renewal payment shocks?

• What strategies can be used to support consumers with upcoming renewals?

• Are there associated product strategy adjustments in place for consumers with changing payment behaviour?

• What competitive pricing and offers can be made to grow market share while new mortgage activity is low?

From a growth perspective, a softer market means fewer new mortgages available. Lenders should consider optimizing all channels so consumers looking to get a mortgage can understand if they qualify and ensure that the mortgage offers being made are market-competitive and attractive to the buyer. Utilizing innovative data solutions can help lenders make more informed and confident credit risk decisions and use predictive data to help retain mortgage clients in the current economic climate.
 

We want to help Canadians live their financial best. If you want to learn more about how understanding consumer credit trends can help inform lending decisions, please contact your Equifax Account Representative. You can also reach us directly at 1-855-233-9226 and follow us on Twitter and LinkedIn.  

 

This article is published by Equifax Canada Co.® 2023. All rights reserved. No part of this article may be reproduced, copied or transmitted in any form or by any means, or stored in a retrieval system of any nature, without the prior permission of Equifax Canada Co. This article is for informational purposes only and is not intended to be legal or business advice. 

 

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