2025 Mortgage Market Outlook
As we enter 2025, the Canadian mortgage market is poised for significant changes. With interest rates remaining a wildcard and various economic factors at play, it’s essential to stay informed about what lies ahead.
1. Loan-to-Income Ratios: A New Normal?
The introduction of new regulations has led to a shift in loan-to-income (LTI) ratios. While incomes are rising more than 4% annually, governments are discouraging foreign and speculative buying, and population growth is being controlled. This could maintain mortgage affordability despite increasing interest rates.
However, it’s essential to note that debt-service ratios have declined slightly but remain near record levels. Non-mortgage debt loads, such as credit cards (+9.4%) and auto loans (+13.6%), are also ballooning year-over-year. As a result, many consumers will need to find more affordable housing options.
2. The Rise of Switching Lenders
Payment shock awaits countless Canadian mortgagors when they renew this year, with most facing rates 200+ basis points above their previous deals. To lower monthly payments, Canadians will comparison shop mortgage rates more aggressively. Many with higher debt ratios will exploit new rules that permit borrowers to switch lenders without having to pass the federal mortgage stress test.
Lenders will sharpen their renewal rates to keep customers in-house while anticipating a large number of mortgage musical chairs due to 1.2 million mortgages up for renewal, far above normal.
3. Cross-Selling: A Double-Edged Sword
Deposit-taking lenders have become increasingly willing to sacrifice upfront interest revenue (i.e., offer fatter mortgage discounts) in hopes of cross-selling other financial products like savings accounts, credit cards, and investments.
This trend benefits consumers by not forcing them to purchase these products but bombards them with offers. However, it puts a competitive squeeze on lenders that don’t have other financial services to sell (a.k.a. ‘monoline’ lenders).
4. Mortgage Musical Chairs: Expect the Unexpected
While 2025 may bring surprises, one thing is certain – plenty of mortgage musical chairs will occur due to changing interest rates and shifting lender strategies. As Robert McLister notes:
"Only one thing is certain: 2025 will bring plenty of surprises."
Key Takeaways
- Interest rates remain a wildcard for 2025
- New regulations may maintain mortgage affordability despite increasing interest rates
- Debt-service ratios near record levels, while non-mortgage debt loads balloon year-over-year
- Switch volumes surge due to payment shock and new rules
- Cross-selling puts competitive pressure on lenders
Stay Informed with Our Experts
Robert McLister is a renowned mortgage strategist and interest rate analyst. Follow him on X at @RobMcLister for expert insights into the Canadian mortgage market.
By staying informed about these trends, you’ll be better equipped to navigate the 2025 mortgage landscape and make informed decisions about your financial future.
Recommended Reading
- The best mortgage rates in Canada right now
- Will mortgage rates keep drifting lower?
Stay ahead of the curve with our expert analysis and insights into the Canadian mortgage market.
