Canada’s Rising Debt & The Mortgage Market

Canadian household debt currently stands at $1.8 billion, one of the highest in the world. In a recent OCED report, Canada’s household debt in relation to its GDP was found to be 101 percent and home prices were overvalued by 50 percent. With the rising debt levels, much speculation has been made about what has driven the staggering rise the part it has played in the reducing affordability of homes in Canada. As new housing market regulations take flight, here is a breakdown of what contributes to Canada’s debt position, what it has meant for the housing market and finally, what regulators are doing to fix it.

The Loose Lending Era

The number one cited reason for the high household debts levels: the loose lending era. In 2012, they faced a credit bubble of their own and Canadians banks found themselves needing a bailout and the housing market being overpriced by 35 percent. Lower interest rates and relaxed regulations by lenders also may the borrowing process much easier, adding the to the rise in household indebtedness.

Many lenders went on to loosen their standards and expectations, granting credit to individuals without proof of income at the time. As a result, many individuals that were not able to repay their granted credit. As a result, Canadians saw the beginning of a housing market boom and steadily rising house prices which in turn fed into the need to borrow higher mortgages and so continued the circle of rising credit.

Higher Home Prices Driving Borrowing

With homes prices in several key cities experiencing a dramatic rise, individuals are having to borrow more to get on the property ladder. Coupled with the  rising debt servicing costs, the total amount owed is quickly rising and contributing to the increased debt per household. Increased foreign buyers and flocking investors using the opportunity drove the rise, supported by speculation. Renters are also being affected with the higher prices forcing renters to live off of debt to afford a place to live.

In June 2017, the Bank of Canada reported it was announced that high ratio mortgages were steadily on the rise and a concern of theirs. By the end of 2017, focus has shifted to the increase in uninsured low ratio mortgages. In response to the rising home prices and lending sprees, the government announced the introduction of tougher mortgage regulations in 2018 and a mortgage stress test to assess borrower’s ability in coping with rise in interest rates. These measures are predicted to slow home sales particularly in areas such as Toronto and Vancouver. If you are looking to secure credit or get on the property ladder, your best bet is the use of comparison lenders. Researching the best loans and rates for you can save you hundreds of dollars each year. Lendingtree.com reviews demonstrate the increasing preference of using online brokers. The platform along with other companies such as CitiMortgage and Prosper have increased the access to credit information, giving consumers the chance of a more informed decision.

What We Can Expect

We can expect to see further measures being rolled out by regulators and the government as they try to cool the housing and financial markets. In April 2017, the Toronto province introduced a foreign buyers tax. Another interest rate hike by the Bank of Canada is expected before the end of 2018, increasing mortgage costs for those on variable terms. Digital mortgage platforms are also on the rise with 2018 seeing many tech startups such as Trussle and LendSnap transforming the mortgage industry.

We have also begun to see the effects of some the regulations being implemented. The first quarter of 2018 saw a slowed growth in housing sales, affecting the demand-price dynamic. With both regulator and consumer pro-activeness, the fight is on to regain control of Canada’s debt and housing market.

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