2025 Mortgage Market Outlook
The Canadian mortgage market is expected to be a hotbed of activity in 2025, driven by changes in government policies, economic trends, and consumer behavior. In this article, we’ll explore five key predictions that will shape the mortgage landscape in the coming year.
1. Loan-to-Income (LTI) Ratios Will Rise
With incomes rising more than four percent annually, governments dissuading foreign and speculative buying, and population growth being pared back, mortgage affordability should remain stable. However, this stability may not be enough to prevent a surge in LTI ratios, as consumers take on more debt to finance their homes.
2. Debt-Service Ratios Will Remain High
Despite a slight decline in debt-service ratios, they are still near record levels. Non-mortgage debt loads, such as credit card and auto loan balances, have ballooned by 9.4% and 13.6%, respectively. This will lead to a increase in homeowners seeking cheaper digs, with many opting for homes further from city cores.
3. Switch Volumes Will Surge
Renewals of existing mortgages will be a major driver of mortgage activity in 2025, as Canadians face payment shock when their interest rates reset. With most borrowers facing rates 200+ basis points above their previous deals, there will be an increased demand for refinancing and switching lenders to secure better rates.
4. Cross-Sale Will Drive Rate Competition
Deposit-taking lenders are increasingly willing to sacrifice upfront interest revenue in exchange for cross-selling other financial products, such as savings accounts, credit cards, and insurance policies. This trend will put pressure on monoline lenders that lack diversified product offerings.
5. Rate Competition Will Intensify
As lenders compete for market share, rate competition is expected to intensify, with many offering fatter mortgage discounts in hopes of securing cross-sales. While this may be good news for consumers, it also creates challenges for monoline lenders struggling to keep up with the competition.
Key Takeaways:
- 2025 will bring significant changes to the Canadian mortgage market.
- LTI ratios are expected to rise, driven by increasing incomes and stable affordability.
- Debt-service ratios will remain high, leading to a surge in homeowners seeking cheaper digs.
- Switch volumes will increase as Canadians seek better rates at renewal.
- Cross-sale will drive rate competition, putting pressure on monoline lenders.
Conclusion:
While the above predictions are based on current trends and data, there is always an element of uncertainty when it comes to predicting future market developments. One thing is certain, however – 2025 will bring plenty of surprises for the Canadian mortgage market.
