Since 2011 we have seen changes come into effect to restrict mortgage lending in Canada, and those changes continue today – all in an effort to curb the market.
The housing market continues to be a vital component to the success of the Canadian economy as it has during the past decade. In many respects, the industry has helped to stabilize a faltering economy. By allowing consumers an opportunity to purchase by taking advantage of low interest rates or to tap into their equity for either spending or investing purposes, the mortgage channel has contributed positively to consumer spending and confidence.
While debt-to-income levels are indeed at its highest point in Canadian history, over the past 20 years personal lines of credit have accounted almost exclusively for the surge in total consumer debt and consumer credit card debt has surged at higher levels than mortgage debt. However, consumers are managing their debt loads well.
Earlier this year, The Canadian Association of Mortgage Professionals (CAAMP) published a report titled A Profile of Home Buying in Canada. The report offers information on homebuyers, and profiles some key aspects of their decision making process, as well as the financial parameters of their decisions. Here are the highlights:
- Each year in Canada, about 620,000 households move into dwellings they have purchased
- Of those 620,000 approximately 45% (280,000) are first-time buyers -- most between the ages of 25 and 34.
- Single-detached homes (estimated at 360,000 per year, or 57% of the total) account for the largest share of home buying for all of Canada.
- On average, the homebuyers made down payments of about $119,000, equal to one-third of the price of the homes.
- For first-time buyers, down payments averaged $67,000, equal to 21% of their average purchase price.
- Buyers do relatively little shopping when they chose their real estate and mortgage professionals.
- Among the buyers who obtained financing, only 16% did not consult a mortgage professional
- Only 9% of borrowers say they did not shop for mortgage quotes
- 56% of mortgage borrowers consulted mortgage brokers
- Mortgage brokers are used most often by for first-time buyers
The growth of the housing will remain neutral in the near term. The resale market activity is widely anticipated to remain close to current levels for the rest of the year and into 2016. And low interest rates are with us for awhile.
Here’s the track record for the mortgage broker channel:
- On average, consumers using a mortgage broker saved 19bps on their interest rates (Competition in the Canadian Mortgage Market, Bank of Canada Review, Winter 2010-2011, p.5)
- Those who renewed or renegotiated recently with a mortgage professional reported an average rate decrease of 1.4 points, compared with 1.0 point among all renewers. (Maritz Research Canada, January 2011)
- Since 1992 changes to the Bank Act, the Big 8 (Big 6 plus Desjardins and ATB) now own more than 80% of mortgage assets in Canada. In the wake of that reduction in competition, the mortgage brokerage channel has grown by over 300% (from 10% to 30%). This competition IS in the best interest of consumers.
As a country, we are fortunate to have weathered the global recession and we have managed to grow through the most recent “technical” recession. Canada is operating on sound financial principals and our housing and mortgage markets will continue to remain robust. It’s been proven that mortgage professionals get better deals for Canadians and it’s been proven that competition is vital to Canadians’ best interests.
Clearly, home buyers, other than new home buyers, would benefit from consulting with a mortgage professional.