Lower rates negating gains
Currently, average home prices widely differ across the country, to the point that higher down payments would not affect surging markets like Toronto and Vancouver, while weaker locations – which collectively experienced a 4.7 per cent decrease in home prices compared to last year – would experience a drop in the sales of high-end homes.
On the heels of record lows in 2015, however, mortgage rates might suffer even more dramatic losses this year. A major contributor to the trend is perceived risks spurring demands for greater returns among investors, which increases the burden on lenders selling mortgages. In turn, such added costs (amounting to as much as 0.1 per cent of the entire mortgage) would trickle down to the borrowers as banks won’t be willing to share the burden.
Another aspect fuelling this situation is provincial administrations like Ottawa compelling banks to hold more capital, along with increasing government guarantee fees.
Lower purchasing power
Slower global growth and plummeting oil values might place more Canadians out of work, even in comparatively safe housing markets like Canada. With income and purchasing power being the most crucial factors in paying off mortgages, greater unemployment would make the current 0.27 per cent overdue rate (27 out of every 10,000 borrowers) unsustainable in the long run.
Prospects for private lenders
With banks having become stricter when it comes to lending, it’s now open season for intensified competition among high-risk lenders, especially private operators who have greater capacity to raise capital and lend to borrowers. Industry observers and policy makers are looking out for the rise of “shadow lending,” in which borrowers get a regular mortgage valued at (for instance) 75 to 80 per cent of their home’s cost, and then adding a second 90 per cent mortgage even without default insurance.
