Analysis in Brief
Trends in the Canadian mortgage market: Before and during COVID-19

by Michael Daoust, Matthew Hoffarth and Thomas Haines

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Acknowledgements

This work would not have been possible without the invaluable contributions and expertise of innumerable dedicated staff from Statistics Canada including Carolina Cabañas-Leòn, Gilbert Côté, Lydia Couture, Yves Gauthier, Lei He, Dragos Ifrim, Matthew Kelly, Dave Krochmalnek, Denise Lafleur, Alexander Li, Alexander McGuire, Daniela Ravindra, Étienne Saint-Pierre, Akram Sirag, and Jennifer Withington.

Introduction

This is the first in a series of papers exploring the trends in borrowing activity observed among Canadian households and businesses leading up to and during 2020. It draws analysis from a wide array of sources, including Statistics Canada’s National Balance Sheet Accounts and Monthly Credit Aggregates, as well as information from Statistic Canada’s Mortgage Loans Report and the Bank of Canada’s Report on New and Existing Lending. The focus of this paper is on household mortgage borrowing, that is, the debt acquired to finance the purchase of a property.

Household mortgage debt leading into and during the pandemic

Following the financial crisis in 2008, significant attention was directed to ensuring stability in financial markets around the world and avoiding the type of risky lending that could result in a new contagion in the financial system. By late 2015, concerns about the strength of Canada’s housing market were beginning to grow, with fears that the markets were overheating in several Canadian cities. In January 2017, in an attempt to address these risks, the Office of the Superintendent of Financial Institutions (OSFI) implemented several new restrictions. These included an interest-rate stress test for all mortgages and, to help curb property speculation, new rules that exempt foreign buyers from earning tax-free capital gains on residential properties.Note As property prices and debt levels continued to rise in many parts of the country, additional concerns grew about the mortgage market’s exposure to interest rate risks resulting from historically low interest rates and record high loan-to-value ratios.Note To help limit risk in this type of lending, in January 2018, OSFI updated its mortgage underwriting guidelines (known as the B-20 guidelines) to require more stringent stress tests for all uninsured mortgages.Note

Chart 1 Year-over-year growth rate of household residential mortgage balances

Data table for Chart 1 
Data table for Chart 1
Table summary
This table displays the results of Data table for Chart 1. The information is grouped by Reference Period (appearing as row headers), Annual growth, calculated using percent units of measure (appearing as column headers).
Reference Period Annual growth
percent
Feb-00 5.4
Mar-00 4.8
Apr-00 4.8
May-00 4.3
Jun-00 4.0
Jul-00 3.7
Aug-00 3.8
Sep-00 4.1
Oct-00 4.6
Nov-00 4.5
Dec-00 4.0
Jan-01 4.9
Feb-01 2.7
Mar-01 3.2
Apr-01 3.0
May-01 3.4
Jun-01 3.8
Jul-01 4.3
Aug-01 4.5
Sep-01 4.6
Oct-01 4.6
Nov-01 5.0
Dec-01 5.8
Jan-02 5.9
Feb-02 5.8
Mar-02 6.4
Apr-02 7.0
May-02 7.5
Jun-02 7.8
Jul-02 8.0
Aug-02 8.0
Sep-02 7.7
Oct-02 8.4
Nov-02 8.2
Dec-02 7.8
Jan-03 8.1
Feb-03 8.4
Mar-03 7.7
Apr-03 7.3
May-03 6.9
Jun-03 6.3
Jul-03 6.6
Aug-03 6.9
Sep-03 7.5
Oct-03 7.3
Nov-03 7.8
Dec-03 7.8
Jan-04 8.0
Feb-04 8.1
Mar-04 8.4
Apr-04 9.0
May-04 9.4
Jun-04 10.3
Jul-04 10.3
Aug-04 10.5
Sep-04 10.3
Oct-04 10.5
Nov-04 10.5
Dec-04 10.6
Jan-05 10.3
Feb-05 10.1
Mar-05 10.0
Apr-05 9.8
May-05 9.7
Jun-05 9.6
Jul-05 9.6
Aug-05 9.6
Sep-05 9.9
Oct-05 9.8
Nov-05 9.7
Dec-05 9.9
Jan-06 10.0
Feb-06 10.3
Mar-06 10.5
Apr-06 10.8
May-06 10.3
Jun-06 9.9
Jul-06 9.9
Aug-06 9.5
Sep-06 9.4
Oct-06 9.6
Nov-06 9.8
Dec-06 10.2
Jan-07 10.5
Feb-07 10.8
Mar-07 11.1
Apr-07 11.4
May-07 11.9
Jun-07 12.6
Jul-07 13.0
Aug-07 13.6
Sep-07 13.7
Oct-07 14.0
Nov-07 13.8
Dec-07 13.6
Jan-08 13.3
Feb-08 12.7
Mar-08 12.2
Apr-08 11.7
May-08 11.8
Jun-08 11.2
Jul-08 11.0
Aug-08 10.6
Sep-08 10.2
Oct-08 9.3
Nov-08 8.5
Dec-08 8.9
Jan-09 8.9
Feb-09 9.0
Mar-09 8.9
Apr-09 8.9
May-09 8.2
Jun-09 8.1
Jul-09 7.9
Aug-09 7.5
Sep-09 7.7
Oct-09 8.0
Nov-09 8.4
Dec-09 7.9
Jan-10 7.8
Feb-10 7.8
Mar-10 7.9
Apr-10 7.7
May-10 8.4
Jun-10 8.7
Jul-10 8.2
Aug-10 8.2
Sep-10 8.0
Oct-10 7.6
Nov-10 7.7
Dec-10 7.5
Jan-11 7.5
Feb-11 7.0
Mar-11 7.4
Apr-11 7.2
May-11 7.0
Jun-11 6.9
Jul-11 7.2
Aug-11 7.5
Sep-11 7.4
Oct-11 7.4
Nov-11 6.9
Dec-11 6.7
Jan-12 6.6
Feb-12 6.9
Mar-12 6.7
Apr-12 6.7
May-12 6.2
Jun-12 5.8
Jul-12 5.4
Aug-12 5.2
Sep-12 5.2
Oct-12 5.1
Nov-12 5.2
Dec-12 5.3
Jan-13 5.1
Feb-13 4.9
Mar-13 4.7
Apr-13 4.6
May-13 4.6
Jun-13 4.8
Jul-13 5.1
Aug-13 4.8
Sep-13 4.8
Oct-13 4.6
Nov-13 4.9
Dec-13 4.7
Jan-14 4.7
Feb-14 4.8
Mar-14 4.9
Apr-14 4.8
May-14 4.8
Jun-14 4.7
Jul-14 4.5
Aug-14 4.8
Sep-14 4.9
Oct-14 5.2
Nov-14 5.1
Dec-14 5.1
Jan-15 5.4
Feb-15 5.4
Mar-15 5.4
Apr-15 5.3
May-15 5.5
Jun-15 5.8
Jul-15 5.9
Aug-15 6.1
Sep-15 6.1
Oct-15 6.2
Nov-15 6.4
Dec-15 6.6
Jan-16 6.5
Feb-16 6.5
Mar-16 6.4
Apr-16 6.7
May-16 6.6
Jun-16 6.6
Jul-16 6.3
Aug-16 6.3
Sep-16 6.3
Oct-16 6.0
Nov-16 6.1
Dec-16 6.0
Jan-17 6.2
Feb-17 6.1
Mar-17 6.0
Apr-17 5.9
May-17 5.9
Jun-17 5.7
Jul-17 5.7
Aug-17 5.4
Sep-17 5.1
Oct-17 5.3
Nov-17 5.0
Dec-17 4.9
Jan-18 4.6
Feb-18 4.7
Mar-18 4.7
Apr-18 4.4
May-18 4.1
Jun-18 3.8
Jul-18 3.7
Aug-18 3.6
Sep-18 3.5
Oct-18 3.3
Nov-18 3.3
Dec-18 3.2
Jan-19 3.1
Feb-19 3.0
Mar-19 3.2
Apr-19 3.3
May-19 3.5
Jun-19 3.6
Jul-19 3.6
Aug-19 3.9
Sep-19 4.0
Oct-19 4.3
Nov-19 4.3
Dec-19 4.5
Jan-20 4.9
Feb-20 5.2
Mar-20 5.2
Apr-20 5.7
May-20 5.8
Jun-20 5.8
Jul-20 5.9
Aug-20 6.1
Sep-20 6.5
Oct-20 6.9
Nov-20 7.5
Event Date Event
July 2008 Max amortization period shortened to 35 years; 5% minimum down payment established
April 2010 20% down payment implemented for rental properties
January 2011 Max amortization period shortened to 30 years
June 2012 Max amortization period shortened to 25 years
October 2016 Interest rate stress tests implemented
January 2018 Updated B-20 guidelines implemented

In the years leading up to the financial crisis of 2008, the stock of outstanding household residential mortgage debt maintained double-digit or near double-digit annual growth. Following the crisis, growth remained above 4.5% year-over-year. This persisted until 2018 when, at the same time as mortgage underwriting standards began to tighten, the Bank of Canada implemented a series of increases to their policy rate. What ensued was a period of relatively tepid growth in the stock of outstanding mortgage debt, slowing to just above 3% in 2019 and marking a moderate departure from prior trends. On a year-over-year basis, the growth in mortgage debt hit its lowest point in nearly two decades, falling to 3.0% in February 2019, after which mortgages rebounded and continued on a path of accelerating growth for the remainder of 2019.

Throughout 2020, mortgage borrowing has remained relatively strong, with households adding nearly $108 billion in mortgage debt by November compared with less than two-thirds of that amount in 2019 and just under $46 billion in 2018.Note Government-orchestrated measures, such as the Canadian Economic Recovery Benefit, the six-month mortgage deferral option offered by financial institutions and reductions to the Bank of Canada’s policy rate to its lowest level since the 2009 financial crisis have helped support the housing market while mortgage borrowing has remained resilient.

Chart 2 Household mortgage debt as a proportion of household disposable income

Data table for Chart 2 
Data table for Chart 2
Table summary
This table displays the results of Data table for Chart 2. The information is grouped by Reference Period (appearing as row headers), Household mortgage debt as a proportion of household disposable income, calculated using percent units of measure (appearing as column headers).
Reference Period Household mortgage debt as a proportion of household disposable income
percent
2000Q1 72.0
2000Q2 71.3
2000Q3 70.3
2000Q4 69.7
2001Q1 68.3
2001Q2 70.4
2001Q3 69.7
2001Q4 70.2
2002Q1 70.4
2002Q2 72.0
2002Q3 71.7
2002Q4 72.4
2003Q1 72.6
2003Q2 73.8
2003Q3 75.4
2003Q4 76.2
2004Q1 77.0
2004Q2 77.3
2004Q3 78.3
2004Q4 79.8
2005Q1 81.6
2005Q2 81.8
2005Q3 83.4
2005Q4 83.9
2006Q1 83.5
2006Q2 85.0
2006Q3 84.6
2006Q4 85.7
2007Q1 86.8
2007Q2 89.8
2007Q3 92.3
2007Q4 93.6
2008Q1 93.7
2008Q2 94.4
2008Q3 94.7
2008Q4 96.7
2009Q1 98.8
2009Q2 100.1
2009Q3 100.1
2009Q4 100.8
2010Q1 100.2
2010Q2 104.0
2010Q3 103.7
2010Q4 103.7
2011Q1 104.7
2011Q2 106.5
2011Q3 107.3
2011Q4 106.5
2012Q1 107.3
2012Q2 108.1
2012Q3 108.0
2012Q4 108.5
2013Q1 107.3
2013Q2 108.1
2013Q3 108.7
2013Q4 108.7
2014Q1 109.3
2014Q2 109.9
2014Q3 109.6
2014Q4 110.7
2015Q1 110.0
2015Q2 110.7
2015Q3 111.7
2015Q4 113.5
2016Q1 118.1
2016Q2 117.9
2016Q3 118.3
2016Q4 118.5
2017Q1 119.6
2017Q2 119.2
2017Q3 117.9
2017Q4 118.1
2018Q1 119.3
2018Q2 119.7
2018Q3 120.0
2018Q4 119.0
2019Q1 120.1
2019Q2 119.2
2019Q3 119.4
2019Q4 119.4
2020Q1 119.5
2020Q2 109.4
2020Q3 114.9

Household mortgage debt as a proportion of disposable income has risen since early 2001. This ratio is an indicator of how well households can manage their debt with their current income. The oil-induced economic shock that occurred in early 2015 pushed the ratio up sharply as household incomes felt the pinch of lower compensation. The ratio subsequently plateaued and remained relatively stable over the period of 2016 to 2019, during which mortgage borrowing guidelines were tightened. This persisted until the second quarter of 2020, when the ratio experienced a significant contraction, not as a result of reduced borrowing, but because of strong growth in disposable income. This was fuelled by assistance from all levels of government to help diminish the economic impact of COVID-19. Disposable incomes rose 12.7% on a seasonally adjusted basis in the second quarter of 2020 from the fourth quarter of 2019, with government transfers up 103.4% over the same period; mortgage credit rose a more modest 3.3%.Note Note If mortgage borrowing remains robust and income decreases back to pre-pandemic levels, then households may find themselves with record levels of mortgage debt relative to their current disposable income in subsequent quarters.

New mortgage lending hits record level as home sales post sharp but short-lived decline

The amount of new lending by chartered banks reached record levels in the first half of 2020, driven in part by significant declines in the costs of borrowing and resilient demand for housing. This lending, which represents the origination of new mortgages for the purchase of residential properties and the refinancing and renewals of existing mortgages, surpassed $42 billion on a seasonally adjusted basis for the first time in March. The change in the outstanding stock of mortgage debt is a combination of this new lending less the repayment of existing debt, with the expansion of new lending persisting in the latter half of the year.

Chart 3 Monthly new mortgage lending versus growth in outstanding mortgage balances

Data table for Chart 3 
Data table for Chart 3
Table summary
This table displays the results of Data table for Chart 3. The information is grouped by Reference Period (appearing as row headers), Monthly new residential mortgage lending to indviduals, seasonally adjusted (left axis) and Monthly growth in seasonally adjusted household residential mortgage debt (right axis), calculated using billions $CAD and percent units of measure (appearing as column headers).
Reference Period Monthly new residential mortgage lending to indviduals, seasonally adjusted (left axis) Monthly growth in seasonally adjusted household residential mortgage debt (right axis)
billions $CAD percent
Jan-17 30,427 0.6
Feb-17 28,592 0.3
Mar-17 29,732 0.3
Apr-17 30,797 0.5
May-17 30,672 0.5
Jun-17 33,000 0.4
Jul-17 40,082 0.4
Aug-17 35,518 0.3
Sep-17 32,635 0.3
Oct-17 31,619 0.4
Nov-17 28,485 0.3
Dec-17 30,229 0.4
Jan-18 35,143 0.3
Feb-18 35,391 0.4
Mar-18 30,919 0.3
Apr-18 30,834 0.2
May-18 32,818 0.2
Jun-18 34,505 0.2
Jul-18 31,351 0.3
Aug-18 29,864 0.2
Sep-18 30,495 0.2
Oct-18 31,165 0.2
Nov-18 32,195 0.3
Dec-18 31,296 0.2
Jan-19 29,792 0.2
Feb-19 28,751 0.3
Mar-19 29,039 0.4
Apr-19 30,538 0.3
May-19 32,657 0.4
Jun-19 40,479 0.4
Jul-19 41,760 0.4
Aug-19 39,591 0.5
Sep-19 40,199 0.4
Oct-19 38,462 0.4
Nov-19 39,409 0.3
Dec-19 37,951 0.4
Jan-20 38,778 0.6
Feb-20 41,076 0.6
Mar-20 42,410 0.4
Apr-20 43,705 0.8
May-20 38,862 0.4
Jun-20 37,932 0.5
Jul-20 38,951 0.5
Aug-20 44,499 0.7
Sep-20 50,319 0.7
Oct-20 50,742 0.8
Nov-20 52,056 0.9
Dec-20 51,203 Note ...: not applicable

With only essential services able to operate in late March, many parts of the economy were brought to a standstill. Stay-at-home orders severely restricted the ability of home sellers to hold open houses, which prevented visits from interested property buyers. While buyers and sellers coped with these limitations, climbing unemployment and increased uncertainty about the future put considerable downward pressure on the housing market, with April marking the lowest sales figure since the late 1980s.Note However, this decline was short lived and, as restrictions eased, the number of homes sold rebounded quickly, setting records for monthly growth in May, June and July.Note Note Despite the initial slowdown caused by COVID-19 restrictions, cumulative January-to-December resales were 12.6% higher in 2020 than over the same period a year earlier.

Chart 4 Monthly Multiple Listing Service (MLS) units sold and mortgage related lending

Data table for Chart 4 
Data table for Chart 4
Table summary
This table displays the results of Data table for Chart 4. The information is grouped by Reference Period (appearing as row headers), New mortgage lending, seasonally adjusted (left axis) and MLS units sold, seasonally adjusted (right axis), calculated using billions $CAD and units sold units of measure (appearing as column headers).
Reference Period New mortgage lending, seasonally adjusted (left axis) MLS units sold, seasonally adjusted (right axis)
billions $CAD units sold
Jan-10 21,177,294 41,096
Feb-10 20,452,904 40,586
Mar-10 24,089,544 42,459
Apr-10 27,373,693 42,377
May-10 24,718,321 36,309
Jun-10 23,572,676 32,790
Jul-10 19,672,983 30,958
Aug-10 18,468,861 33,961
Sep-10 20,441,812 34,587
Oct-10 21,024,074 35,883
Nov-10 22,811,168 37,368
Dec-10 21,986,834 37,349
Jan-11 21,779,342 39,431
Feb-11 21,834,329 38,654
Mar-11 21,623,690 38,257
Apr-11 20,407,138 36,802
May-11 20,104,901 36,264
Jun-11 20,625,546 37,495
Jul-11 20,580,705 36,893
Aug-11 20,741,571 37,745
Sep-11 22,152,899 38,347
Oct-11 22,552,712 38,594
Nov-11 21,953,307 39,230
Dec-11 21,522,407 39,623
Jan-12 20,976,890 39,607
Feb-12 26,540,843 41,085
Mar-12 23,465,362 40,635
Apr-12 24,150,118 41,875
May-12 20,316,340 38,849
Jun-12 19,478,531 36,709
Jul-12 19,359,444 36,370
Aug-12 18,908,867 34,370
Sep-12 18,691,834 35,246
Oct-12 18,190,437 35,471
Nov-12 18,664,317 35,312
Dec-12 18,519,023 36,940
Jan-13 20,239,119 37,368
Feb-13 20,979,661 36,587
Mar-13 21,985,346 37,058
Apr-13 22,980,301 36,637
May-13 23,173,128 36,753
Jun-13 24,657,793 37,666
Jul-13 24,085,461 38,331
Aug-13 23,513,975 39,493
Sep-13 22,886,219 39,556
Oct-13 21,440,872 38,484
Nov-13 21,299,648 38,583
Dec-13 20,679,899 38,452
Jan-14 21,810,328 38,349
Feb-14 23,065,956 38,183
Mar-14 23,359,281 37,425
Apr-14 23,501,384 38,350
May-14 24,712,294 40,194
Jun-14 23,933,011 41,374
Jul-14 24,662,576 42,053
Aug-14 25,266,440 41,843
Sep-14 24,670,191 42,029
Oct-14 26,188,214 41,397
Nov-14 25,453,100 41,269
Dec-14 26,352,855 38,708
Jan-15 25,886,403 39,821
Feb-15 28,038,351 39,520
Mar-15 31,392,703 41,105
Apr-15 30,680,763 41,923
May-15 30,409,113 43,110
Jun-15 30,217,499 45,039
Jul-15 29,608,933 43,667
Aug-15 31,825,287 43,243
Sep-15 33,251,737 42,135
Oct-15 34,474,354 42,354
Nov-15 34,989,756 43,356
Dec-15 36,842,965 41,472
Jan-16 36,571,639 43,811
Feb-16 34,254,822 44,929
Mar-16 33,696,037 46,081
Apr-16 32,736,470 47,559
May-16 32,300,211 46,863
Jun-16 32,619,101 48,266
Jul-16 34,643,383 45,409
Aug-16 34,104,511 44,690
Sep-16 34,292,511 44,135
Oct-16 32,918,431 44,515
Nov-16 34,250,006 41,757
Dec-16 35,640,713 41,108
Jan-17 31,299,846 42,481
Feb-17 28,852,298 45,036
Mar-17 30,271,553 47,853
Apr-17 31,540,482 46,560
May-17 31,357,252 44,351
Jun-17 31,281,918 41,386
Jul-17 39,271,425 39,300
Aug-17 35,638,191 39,781
Sep-17 32,479,476 40,243
Oct-17 31,322,191 40,778
Nov-17 28,171,095 42,485
Dec-17 30,301,153 43,655
Jan-18 36,405,613 40,252
Feb-18 36,209,458 39,206
Mar-18 32,592,020 39,525
Apr-18 30,689,454 37,167
May-18 33,721,505 36,121
Jun-18 32,565,313 37,915
Jul-18 30,106,979 38,294
Aug-18 29,838,861 38,678
Sep-18 30,422,968 38,696
Oct-18 30,790,759 37,701
Nov-18 30,747,357 37,766
Dec-18 31,885,864 38,282
Jan-19 30,524,436 39,459
Feb-19 29,546,030 38,149
Mar-19 30,193,272 38,004
Apr-19 31,592,785 39,893
May-19 33,695,906 40,138
Jun-19 36,051,656 40,087
Jul-19 38,948,895 42,057
Aug-19 39,168,540 41,919
Sep-19 40,551,697 42,691
Oct-19 39,363,057 42,818
Nov-19 39,481,102 42,600
Dec-19 39,509,353 42,064
Jan-20 40,396,147 42,227
Feb-20 43,426,665 46,858
Mar-20 44,139,064 39,980
Apr-20 44,459,548 12,729
May-20 39,148,339 21,849
Jun-20 33,612,196 44,765
Jul-20 36,181,147 57,642
Aug-20 44,649,633 58,373
Sep-20 50,274,761 60,219
Oct-20 51,362,984 58,485
Nov-20 51,044,302 54,855
Dec-20 51,838,148 53,411

Table 1
Monthly growth in seasonally adjusted mortgage lending and MLS sales
Table summary
This table displays the results of Monthly growth in seasonally adjusted mortgage lending and MLS sales. The information is grouped by Reference Period (appearing as row headers), Jan-20, Feb-20, Mar-20, Apr-20, May-20, Jun-20, Jul-20, Aug-20, Sep-20, Oct-20, Nov-20 and Dec-20, calculated using percent units of measure (appearing as column headers).
Reference Period Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20
percent
New mortgage lending, seasonally adjusted 2.2 7.5 1.6 0.7 -11.9 -14.1 7.6 23.4 12.6 2.2 -0.6 1.6
MLS units sold, seasonally adjusted 0.4 11.0 -14.7 -68.2 71.6 104.9 28.8 1.3 3.2 -2.9 -6.2 -2.6

Although resale activity fell significantly in March, followed by a record monthly decline in April, the impact on new lending would not become apparent until May, when the demand for funds declined in response to the preceding drop in sales activity. Typically, there can be a lag of up to three months between when a sales agreement is signed and when the funds are actually transferred. Despite this decline in sales through April, new lending decreased only modestly in May and June as mortgage refinancing and renewals helped dampen the impact of the decline in sales. Similarly, the sharp recovery in housing demand was mirrored by growth in new lending later in the year.

As time spent at home increased during the pandemic, shifting housing preferences coupled with pent up demand pushed home sales to record levels throughout the summer. As of October, over one-quarter of Canadians (2.4 million individuals) who would not normally work from home were doing so, while the number of Canadians working at locations other than home was little changed.Note Working from home continues to be an important adaptation to COVID-19 health risks, and this new reality has likely increased the importance of securing suitable housing options. According to the Bank of Canada’s Monetary Policy Report, more than one-quarter of respondents to the Canadian Survey of Consumer Expectations for the third quarter of 2020 reported that they would like to move to a larger or single family home because of the pandemic.Note

Due in large part to the historically low interest rates and these changing housing requirements, Canadian housing prices continued to climb above their pre-pandemic levels during 2020. Statistics Canada’s Residential Property Price Index (RPPI), which includes both resale and new build properties in Canada’s major cities, ended the fourth quarter of 2020 up 8.5% from the fourth quarter of 2019. Prices for resale properties rose 9.4% from the fourth quarter of the previous year, outpacing the similarly strong 6.4% growth of new build property prices over the same period.Note

Chart 5 Residential property price index, quarterly

Data table for Chart 5 
Data table for Chart 5
Table summary
This table displays the results of Data table for Chart 5. The information is grouped by Reference Period (appearing as row headers), Total, New build and Resale, calculated using index value units of measure (appearing as column headers).
Reference Period Total New build Resale
index value
2017 Q1 95.4 96.7 94.8
Q2 100.8 99.1 101.4
Q3 102.1 101.5 102.3
Q4 101.8 102.6 101.4
2018 Q1 102.5 102.3 102.6
Q2 103.8 102 104.5
Q3 104 102.6 104.6
Q4 103.6 103.4 103.7
2019 Q1 103.1 103.7 102.9
Q2 104 103.5 104.3
Q3 104.2 102.8 104.9
Q4 105.3 104.5 105.7
2020 Q1 107.5 107 107.8
Q2 109.9 108.5 110.7
Q3 111.4 109.5 112.4
Q4 114.2 111.2 115.6

Strength in new lending fuelled by originations and renewals

New lending by chartered banks can be broken down into funds extended for new home purchases and funds related to renewals and refinancing with either the same or a different lender. As the volume of resales declined through 2018 and increased only modestly through 2019, renewals began to account for a larger share of overall new lending. With fewer borrowers requesting funds to purchase new homes, there was a relatively larger share of existing mortgages due for renewal as they reached the end of their term.

As interest rates fell to historic lows during the first quarter of 2020, mortgage refinancing and renewals spiked, sending the total value of mortgage renewals (same lender) up 13.3% on a seasonally adjusted basis. Since many financial institutions allow borrowers to renew several months before the end of their term, it is possible that renewals were fuelled not only by those with terms ending in the quarter, but also by those with terms expiring in subsequent quarters who may have taken advantage of early renewal options.

Chart 6 Seasonally adjusted lending by purpose

Data table for Chart 6 
Data table for Chart 6
Table summary
This table displays the results of Data table for Chart 6. The information is grouped by Reference Period (appearing as row headers), New purchase, Same refinancing, Same renewal and Other refinancing and renewal, calculated using billions $CAD units of measure (appearing as column headers).
Reference Period New purchase Same refinancing Same renewal Other refinancing and renewal
billions $CAD
2018 Q1 33,312 18,995 41,303 4,785
Q2 31,833 17,226 43,612 5,105
Q3 27,874 16,035 37,104 5,644
Q4 33,484 15,484 38,265 5,860
2019 Q1 29,396 15,136 35,912 6,213
Q2 30,503 16,321 44,172 6,819
Q3 34,836 19,784 52,128 8,095
Q4 37,473 20,243 50,917 8,123
2020 Q1 39,306 21,104 57,682 9,326
Q2 35,306 20,290 52,032 9,041
Q3 40,790 19,425 53,939 7,841

Household borrowers react to interest rate environment and shift term preferences

Mortgage lending data from chartered banks show that Canadians generally prefer five-year fixed-rate mortgages, with this loan type accounting for 49% of the total outstanding balance of existing mortgages in late 2020 compared with just under 42% in early 2019.Note New loan preferences fluctuate as the interest rate environment changes, for example, the popularity of five-year fixed-rate mortgages has grown substantially since the beginning of 2019 as fixed-term mortgages became available at similar or even lower rates than their variable-term counterparts. As interest rates dropped in March 2020, the demand for variable-rate mortgages spiked while longer-term rates were slower to adjust. As longer-term rates began to mirror the decline in variable rates, growth in demand for five-year fixed-rate mortgages accelerated into the summer.

Chart 7 Discount mortgage rates by type and term

Data table for Chart 7 
Data table for Chart 7
Table summary
This table displays the results of Data table for Chart 7. The information is grouped by Reference Period (appearing as row headers), Five-year variable-rate mortgage and Five-year fixed-rate mortgage, calculated using percent units of measure (appearing as column headers).
Reference Period Five-year variable-rate mortgage Five-year fixed-rate mortgage
percent
Jan-16 2.04 2.44
Feb-16 2.04 2.34
Mar-16 2.07 2.34
Apr-16 2.04 2.36
May-16 2.03 2.33
Jun-16 1.97 2.29
Jul-16 1.94 2.28
Aug-16 1.92 2.23
Sep-16 1.92 2.17
Oct-16 1.92 2.12
Nov-16 1.99 2.09
Dec-16 1.97 2.29
Jan-17 1.87 2.29
Feb-17 1.85 2.42
Mar-17 1.74 2.35
Apr-17 1.74 2.29
May-17 1.69 2.24
Jun-17 1.75 2.24
Jul-17 1.75 2.24
Aug-17 1.94 2.64
Sep-17 1.95 2.64
Oct-17 2.05 2.83
Nov-17 1.85 2.69
Dec-17 1.95 2.69
Jan-18 1.95 2.79
Feb-18 2.21 2.94
Mar-18 2.21 2.99
Apr-18 2.2 2.99
May-18 1.85 3.09
Jun-18 1.85 3.04
Jul-18 1.85 3.04
Aug-18 1.85 3.04
Sep-18 2.45 3.09
Oct-18 2.45 3.13
Nov-18 2.36 3.19
Dec-18 2.36 3.19
Jan-19 2.36 3.19
Feb-19 2.7 3.24
Mar-19 2.7 2.89
Apr-19 2.66 2.74
May-19 2.61 2.74
Jun-19 2.65 2.54
Jul-19 2.61 2.49
Aug-19 2.61 2.37
Sep-19 2.65 2.37
Oct-19 2.65 2.39
Nov-19 2.48 2.29
Dec-19 2.5 2.29
Jan-20 2.65 2.49
Feb-20 2.54 2.44
Mar-20 1.84 2.24
Apr-20 1.95 2.14
May-20 1.95 2.14
Jun-20 1.75 1.99
Jul-20 1.7 1.89
Aug-20 1.6 1.74
Sep-20 1.54 1.64
Oct-20 1.35 1.54
Nov-20 1.35 1.49
Dec-20 0.99 1.39

Chart 8 Seasonally adjusted monthly residential mortgage new funds advanced by loan term

Data table for Chart 8 
Data table for Chart 8
Table summary
This table displays the results of Data table for Chart 8. The information is grouped by Reference Period (appearing as row headers), Less than three years, Three to < five years, Five years+ and Variable, calculated using billions $CAD units of measure (appearing as column headers).
Reference Period Less than three years Three to < five years Five years+ Variable
billions $CAD
Jan-16 10,961,804 5,117,450 11,144,794 9,132,788
Feb-16 10,867,416 5,068,332 10,482,164 7,686,819
Mar-16 11,097,376 5,391,759 9,771,478 6,269,676
Apr-16 12,516,323 5,556,651 9,122,824 5,917,949
May-16 12,124,863 4,861,652 10,166,965 5,153,699
Jun-16 12,178,454 5,275,834 10,971,313 5,261,813
Jul-16 12,825,703 4,986,340 11,667,711 5,982,592
Aug-16 12,293,333 4,907,053 11,268,109 5,575,251
Sep-16 11,990,808 5,283,906 11,735,316 5,430,025
Oct-16 10,798,247 4,972,087 11,553,738 5,191,082
Nov-16 11,363,512 5,898,239 12,500,627 5,045,840
Dec-16 10,617,896 6,589,100 12,921,059 4,530,069
Jan-17 9,857,857 5,403,347 10,629,609 4,535,778
Feb-17 9,243,543 4,901,317 9,203,665 5,243,040
Mar-17 9,292,900 5,094,698 9,509,074 5,835,324
Apr-17 9,085,574 4,732,618 10,253,235 6,725,959
May-17 9,104,199 4,320,402 10,186,715 7,061,064
Jun-17 9,517,652 5,207,047 11,459,589 6,815,884
Jul-17 10,888,911 8,223,853 15,111,754 5,857,283
Aug-17 9,666,695 7,067,232 13,547,573 5,236,142
Sep-17 9,044,094 6,470,682 12,334,625 4,785,426
Oct-17 9,396,966 6,421,607 11,521,954 4,278,369
Nov-17 8,775,631 4,872,292 9,499,933 5,336,733
Dec-17 8,648,728 4,308,555 10,654,550 6,617,201
Jan-18 10,428,612 5,594,134 12,226,506 6,893,917
Feb-18 10,542,225 6,106,485 12,528,654 6,213,389
Mar-18 8,920,488 5,547,963 10,917,445 5,532,784
Apr-18 8,861,416 5,254,246 10,079,161 6,638,926
May-18 9,654,132 4,882,176 9,976,761 8,305,354
Jun-18 8,424,094 3,958,226 8,238,456 13,884,045
Jul-18 8,329,648 3,597,379 7,031,777 12,392,024
Aug-18 8,763,799 3,675,242 6,446,782 10,978,438
Sep-18 9,511,194 4,187,698 6,580,085 10,215,850
Oct-18 9,180,883 4,843,833 7,411,958 9,728,677
Nov-18 9,040,296 6,107,137 8,419,308 8,628,132
Dec-18 9,512,627 5,590,923 8,598,281 7,594,587
Jan-19 9,550,755 5,064,913 7,990,323 7,185,612
Feb-19 9,779,737 4,064,709 8,602,156 6,304,367
Mar-19 9,499,343 4,980,965 9,439,420 5,118,933
Apr-19 9,868,458 6,490,733 10,196,649 3,981,881
May-19 10,183,416 7,949,999 11,676,023 2,847,202
Jun-19 9,971,171 15,095,979 13,084,861 2,327,101
Jul-19 9,324,352 15,230,350 15,083,073 2,122,546
Aug-19 8,843,357 13,356,307 15,484,709 1,906,131
Sep-19 8,886,217 12,092,602 17,370,597 1,849,914
Oct-19 8,760,966 11,028,200 16,868,702 1,803,892
Nov-19 9,067,135 10,761,792 17,318,555 2,261,149
Dec-19 8,713,994 9,249,077 17,469,852 2,518,552
Jan-20 8,551,231 9,633,774 17,878,612 2,713,935
Feb-20 9,528,612 9,678,184 18,484,464 3,384,638
Mar-20 7,764,820 9,360,287 19,368,344 5,916,518
Apr-20 6,815,310 7,877,070 19,541,403 9,470,998
May-20 6,412,520 6,332,972 17,741,380 8,375,513
Jun-20 6,294,295 6,104,670 18,179,624 7,353,467
Jul-20 6,320,396 6,002,903 17,914,209 8,713,229
Aug-20 6,599,363 6,614,448 20,481,387 10,804,128
Sep-20 6,499,176 8,024,768 23,587,296 12,207,700
Oct-20 6,609,970 8,908,233 22,251,717 12,972,165
Nov-20 6,894,932 10,033,299 21,516,421 13,611,106
Dec-20 5,315,228 10,314,449 20,867,985 14,705,786

Chartered banks provide the bulk of mortgage financing and deferrals

Historically, non-bank lending institutions have held about a quarter of the total household residential mortgage market’s outstanding debt. As the lockdown took effect in March 2020, the growth in outstanding household mortgage debt provided by non-banks slowed, with chartered banks providing the bulk of the funds. As businesses reopened in April, the amount of mortgage lending administered by both chartered banks and non-banks surged to record levels. With the accelerating growth of home sales into the summer, non-bank mortgage lending was outpaced by that of banks as they represented a smaller portion of mortgage lending in each month through the end of November, while posting a sizable increase in this final month.

Chart 9 Monthly change in outstanding mortgages debt by lender sector

Data table for Chart 9 
Data table for Chart 9
Table summary
This table displays the results of Data table for Chart 9. The information is grouped by Reference Period (appearing as row headers), Chartered banks, Government, Non-bank financial corporations and Other lenders, calculated using billions $CAD units of measure (appearing as column headers).
Reference Period     Chartered banks       Government       Non-bank financial corporations       Other lenders
billions $CAD
Jan-18 2,424 4 1,985 82
Feb-18 3,258 7 1,700 67
Mar-18 3,016 6 929 166
Apr-18 2,478 0 655 -95
May-18 1,677 -2 941 -2
Jun-18 3,458 -3 -152 -38
Jul-18 1,501 1 2,786 109
Aug-18 1,613 2 1,874 75
Sep-18 2,171 1 1,343 79
Oct-18 2,598 3 365 64
Nov-18 3,719 2 816 63
Dec-18 2,941 1 561 49
Jan-19 2,646 2 1,017 -5
Feb-19 2,263 2 1,475 -19
Mar-19 4,721 1 1,690 93
Apr-19 3,610 1 754 -197
May-19 6,409 2 -301 -83
Jun-19 4,930 3 787 -124
Jul-19 4,759 3 522 16
Aug-19 6,245 3 740 -19
Sep-19 5,035 3 1,110 -13
Oct-19 5,317 4 1,066 14
Nov-19 4,301 3 469 18
Dec-19 5,675 3 1,118 -4
Jan-20 7,835 7 1,346 159
Feb-20 6,707 2 1,829 129
Mar-20 5,935 2 468 244
Apr-20 10,356 3 1,889 -15
May-20 4,871 1 2,062 96
Jun-20 5,644 3 1,641 65
Jul-20 6,311 2 1,117 65
Aug-20 9,490 3 942 42
Sep-20 10,644 4 1,092 38
Oct-20 11,704 2 939 17
Nov-20 11,241 1 2752 16

As the employment rate fell and businesses closed for the first time in March, many Canadians found themselves out of work or working reduced hours. To support borrowers and reduce the risk of near-term mortgage defaults, OSFI announced a special capital treatment for federally regulated deposit-taking institutions granting payment deferrals to borrowers. This gave many lenders leeway to provide relief without the need to reclassify loans with payment deferrals as non-performing. As of November 30, 2020, chartered banks had provided mortgage payment deferrals to more than 797,900 Canadians.Note In comparison, non-bank lenders, while not subject to the guidelines outlined by OSFI, also provided payment deferrals on a further 100,372 mainly uninsured mortgages during the second quarter.Note

Debt service ratios drop as households defer mortgage payments

The household debt service ratio is a measure of total obligated payments of principal and interest as a proportion of household disposable income and excludes deferred principal payments, resulting in a lower ratio than if borrowers had been obligated to pay. Between the first and third quarters of 2020, the size of these deferrals as a proportion of total obligated payments of mortgage principal grew from less than 1% to a high of over 18% in the second quarter. By the third quarter, the proportion had fallen considerably as the special capital treatment provided by OSFI on new approvals came to an end on October 1st, 2020.

Chart 10 Household mortgage debt service ratio and payment deferrals

Data table for Chart 10 
Data table for Chart 10
Table summary
This table displays the results of Data table for Chart 10. The information is grouped by Reference Period (appearing as row headers), Total interest payment (left axis), Total principal payment (left axis), Total deferred principal (left axis) and Debt service ratio (right axis), calculated using billions $CAD
and percent units of measure (appearing as column headers).
Reference Period Total interest payment (left axis) Total principal payment (left axis) Total deferred principal (left axis) Debt service ratio (right axis)
billions $CAD
percent
2018Q2 47064 39552 Note ...: not applicable 6.6
2018Q3 48624 39260 Note ...: not applicable 6.7
2018Q4 52472 37396 Note ...: not applicable 6.7
2019Q1 52904 38652 Note ...: not applicable 6.8
2019Q2 53756 39432 Note ...: not applicable 6.8
2019Q3 54528 40140 Note ...: not applicable 6.8
2019Q4 54040 41920 Note ...: not applicable 6.9
2020Q1 53532 43060 400 6.8
2020Q2 53140 38060 7108 5.9
2020Q3 52524 43516 3056 6.4

Expected credit losses grow, but represent only a small proportion of overall mortgage debt

As part of their risk management activities, financial institutions estimate the proportion of their loan portfolios that may enter default each period. These expected credit losses (ECL) are based on actuarial assumptions that attempt to anticipate the default rates on their loans and subsequently the amount of impaired loans that may need to be written off in a given period. While ECL on mortgage loans had been rising slowly from 2017 to the end of 2019, as the pandemic hit, banks’ ECL increased sharply. With non-essential businesses unable to operate, most of the growth in anticipated credit losses occurred on non-mortgage loans. Despite the increasing ECL through 2020, the risks in the mortgage market were seen as very minor, with total ECL on mortgage loans as a proportion of total household mortgage debt reaching only 0.1% in the third quarter of 2020.

Chart 11 Expected credit losses (ECL) on outstanding mortgage balances

Data table for Chart 11 
Data table for Chart 11
Table summary
This table displays the results of Data table for Chart 11. The information is grouped by Reference Period (appearing as row headers), ECL related to mortgage lending (left axis) and ECL as a proportion of total household mortgage debt (right axis), calculated using billions $CAD and percent units of measure (appearing as column headers).
Reference Period ECL related to mortgage lending (left axis) ECL as a proportion of total household mortgage debt (right axis)
billions $CAD percent
2009 Q1 361 0.04
Q2 379 0.04
Q3 350 0.04
Q4 344 0.04
2010 Q1 353 0.04
Q2 366 0.04
Q3 371 0.04
Q4 422 0.04
2011 Q1 408 0.04
Q2 443 0.04
Q3 437 0.04
Q4 431 0.04
2012 Q1 491 0.05
Q2 534 0.05
Q3 545 0.05
Q4 529 0.05
2013 Q1 527 0.05
Q2 517 0.05
Q3 628 0.05
Q4 596 0.05
2014 Q1 605 0.05
Q2 718 0.06
Q3 575 0.05
Q4 612 0.05
2015 Q1 488 0.04
Q2 582 0.05
Q3 661 0.05
Q4 507 0.04
2016 Q1 559 0.04
Q2 600 0.05
Q3 552 0.04
Q4 574 0.04
2017 Q1 619 0.04
Q2 627 0.04
Q3 577 0.04
Q4 579 0.04
2018 Q1 621 0.04
Q2 625 0.04
Q3 668 0.05
Q4 662 0.04
2019 Q1 735 0.05
Q2 746 0.05
Q3 790 0.05
Q4 797 0.05
2020 Q1 853 0.05
Q2 1,205 0.08
Q3 1,482 0.09

Growth in overall household debt during COVID-19 led by mortgage borrowing

The growth in outstanding mortgage balances had been declining since the financial crisis, peaking in October 2007, then decreasing to a low of 3.0% in February 2019. As mortgage rates began to decline through 2019, home sales started to accelerate and the growth of outstanding balances once again began to rise. COVID-19 restrictions forced non-essential businesses to close in March 2020 and it seemed that the housing market would be especially adversely impacted. Instead, government support measures, coupled with historically low interest rates, helped to prop up the housing market in 2020, demonstrated by cumulative housing sales exceeding those of 2019 and annual growth in outstanding mortgage balances reaching 7.5 % in November 2020. Despite rising mortgage balances, historically low interest rates and robust incomes have kept mortgage debt burdens from surpassing their pre-pandemic levels.

While this article has focused on trends in mortgage borrowing, it does not tell the whole story on household debt over the last 12 months. Non-mortgage loans, which are funds used primarily for consumption, were impacted significantly by the various social-distancing measures that were implemented. The outstanding stock of non-mortgage debt exhibited a sharp contraction in the first half of 2020 as household consumption declined by a record amount.Note By the end of November, households had added $108.0 billion to their outstanding mortgage debt while simultaneously shedding almost $8 billion from non-mortgage debt since December 2019.

This will be examined further in a future article in this series on debt.

Chart 12 Year-over-year growth in household mortgage and non-mortgage loans

Data table for Chart 12 
Data table for Chart 12
Table summary
This table displays the results of Data table for Chart 12. The information is grouped by Reference Period (appearing as row headers), Non-mortgage loans and Mortgage loans, calculated using percent units of measure (appearing as column headers).
Reference Period Non-mortgage loans Mortgage loans
percent
Jan-18 4.8 4.7
Feb-18 4.7 4.7
Mar-18 4.4 4.7
Apr-18 4.4 4.4
May-18 4.7 4.1
Jun-18 4.7 3.8
Jul-18 4.7 3.7
Aug-18 4.9 3.6
Sep-18 5.2 3.5
Oct-18 5.2 3.3
Nov-18 5.4 3.3
Dec-18 5.1 3.2
Jan-19 4.7 3.1
Feb-19 4.5 3.0
Mar-19 4.2 3.2
Apr-19 4.2 3.3
May-19 4.0 3.5
Jun-19 3.9 3.6
Jul-19 3.7 3.6
Aug-19 3.6 3.8
Sep-19 3.3 4.0
Oct-19 3.2 4.2
Nov-19 2.9 4.3
Dec-19 3.1 4.5
Jan-20 3.4 4.9
Feb-20 3.7 5.2
Mar-20 2.7 5.2
Apr-20 0.7 5.7
May-20 -0.7 5.8
Jun-20 -1.1 5.8
Jul-20 -1.1 5.9
Aug-20 -0.8 6.1
Sep-20 -0.8 6.5
Oct-20 -0.8 6.9
Nov-20 -0.6 7.4

References

Bank of Canada (December 2020). “Historical selected credit measures (formerly E2).” Available at https://www.bankofcanada.ca/rates/banking-and-financial-statistics/selected-credit-measures-formerly-e2/.

Bank of Canada (December 2020). Monetary Policy Report – October 2020. Available at https://www.bankofcanada.ca/2-2-/10/mpr-2020-10-28.

Canada Mortgage and Housing Corporation (October 2020). Residential Mortgage Industry Report – September 2020. Available at https://www.cmhc-schl.gc.ca/en/data-and-research/publications-and-reports/housing-market-assessment.

Office of the Superintendent of Financial Institutions (December 2020). Residential Mortgage Underwriting Practices and Procedures Guideline (B-20). Available at https://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/b20-nfo.aspx.

Rate Hub – Historical Mortgage Rates in Canada (December 2020). Available at www.ratehub.ca/historical-mortgage-rates-widget.

Rate Spy (December 2020). History of Mortgage Rule Changes in Canada. Available at https://www.ratespy.com/history-of-mortgage-rule-changes-03255560.

Statistics Canada (December 2020). “Credit liabilities of households.” Available at https://www150.statcan.gc.ca/t1/tbl1/en/cv.action?pid=3610063901.

Statistics Canada (October 2020). “Current and capital accounts – households, Canada, quarterly.” Available at https://www150.statcan.gc.ca/t1/tbl1/en/cv.action?pid=3610011201.

Statistics Canada (December 2020). “Debt service indicators of households, national balance sheet accounts.” Available at https://www150.statcan.gc.ca/t1/tbl1/en/cv.action?pid=1110006501.

Statistics Canada (October 2020). “Household sector credit market summary table, seasonally adjusted estimates.” Available at https://www150.statcan.gc.ca/t1/tbl1/en/cv.action?pid=3810023801.

Statistics Canada (December 2020). “Residential mortgage credit, outstanding balances of major private lenders, Bank of Canada.” Available at https://www150.statcan.gc.ca/t1/tbl1/en/cv.action?pid=1010012901.

Statistics Canada (December 2020). Labour Force Survey, October 2020. Available at https://www150.statcan.gc.ca/n1/daily-quotidien/201106/dq201106a-eng.htm.

Statistics Canada (October 2020). “Residential property price index, quarterly.” Available at https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810016901.

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