2025 Mortgage Market Outlook: Predictions and Trends
As we approach 2025, the Canadian mortgage market is expected to undergo significant changes. With various factors influencing the market, here are five predictions and trends that may shape the industry:
- Loan-to-Income Ratios Will Play a Crucial Role: The loan-to-income (LTI) ratio will continue to be a key factor in determining mortgage affordability. As incomes rise more than four percent annually, governments dissuade foreign and speculative buying, and population growth is pared back, mortgage affordability should remain stable.
However, interest rates remain a significant wildcard for 2025. The Federal Reserve’s decisions on monetary policy will directly impact Canadian mortgage rates. A decrease in interest rates may lead to increased demand for mortgages, while an increase could reduce demand and slow down the market.
- Debt-Service Ratios Will Remain High: Despite a slight decline, debt-service ratios are still near record highs. Non-mortgage debt loads, such as credit cards (+9.4% year-over-year) and auto loans (+13.6%), continue to balloon, putting pressure on consumers’ budgets. Many debt-laden homeowners will need to find more affordable housing options, leading to an increase in demand for homes outside of urban centers.
The trend towards work-from-home arrangements will further exacerbate this issue, as middle-class Canadians seek cheaper digs with longer commutes.
- Switch Volumes Will Surge: Payment shock awaits many Canadian mortgagors when they renew their mortgages, with most facing rates 200+ basis points above their previous deals. In response, borrowers will aggressively comparison shop for mortgage rates, exploiting new rules that permit switching lenders without passing the federal mortgage stress test.
Expect a surge in mortgage musical chairs as lenders sharpen their renewal rates to retain customers and anticipate an influx of new switchers, with over 1.2 million mortgages up for renewal – far above normal expectations.
- Cross-Selling Will Drive Rate Competition: Deposit-taking lenders are increasingly willing to sacrifice upfront interest revenue by offering fatter mortgage discounts in hopes of cross-selling other financial products, such as savings accounts, credit cards, and insurance policies.
This trend will put a competitive squeeze on monoline lenders that don’t have other financial services to offer, while benefiting consumers who can choose from multiple product offerings without being forced to purchase them.
- Monoline Lenders Will Struggle: The shift towards cross-selling will make it challenging for monoline lenders, which lack the ability to offer bundled pricing and other financial products. These lenders will need to adapt quickly to remain competitive in a market where customers are increasingly seeking holistic financial solutions.
In conclusion, while these predictions don’t venture too far out on a limb, one thing is certain: 2025 will bring plenty of surprises for the Canadian mortgage market. As rates and regulations continue to evolve, lenders and borrowers must stay agile to navigate the changing landscape.
Robert McLister is a mortgage strategist, interest rate analyst, and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.
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