Canada’s uninsured mortgage market reached an eight-year high in January as government steps to reduce taxpayer exposure to the housing market gain traction, according to data from the country’s banking regulator.

Mortgages that don’t require homeowner insurance surged 19 per cent from a year ago, accounting for about 53 per cent of the $1.13 trillion of home loans at Canada’s federally regulated banks, data from the Office of the Superintendent of Financial Institutions show. Insured home loans fell 6.5 per cent from a year ago.

Uninsured mortgages have taken an increasing share of the nation’s housing loans since 2012 as the government moved to reduce the chances of the kind of taxpayer-funded bank bailouts that happened after the U.S. housing crash a decade ago.

Still, the slowdown of residential mortgage volumes continues, with banks posting a 5.3 per cent increase from January 2017, down from a recent high of 6.6 per cent in May, the data show. The trend reflects the sentiments of executives of Canada’s Big Six banks, who commented on a cooling mortgage market in recent weeks after reporting earnings results for the first quarter.

“The slowdown in mortgage growth has been evident since the middle of last year, reflecting the impact of prior policy measures, as well as three interest rate hikes by the Bank of Canada,” DBRS Ltd. said in a March 19 note.

In January, OSFI made it more difficult for those with more than a 20 per cent down payment to qualify for loans. The measures, known as B-20 guidelines, requires borrowers to qualify at the greater of the Bank of Canada’s five-year benchmark rate or 2 percentage points higher than the offered mortgage rate. Prospective borrowers have increasingly been turning to alternative lenders to qualify.

“With new mortgage rules taking effect on January 1, home sales have showcased two straight months of declines,” Barclays Plc analyst John Aiken said in a March 16 note to clients. “While stronger home sales at the end of 2017 could still buoy mortgage growth in the second quarter, we anticipate new mortgage origination volume could be tested in the back half of the year.”

by Bloomberg
Canada’s uninsured mortgage market reached an eight-year high in January as government steps to reduce taxpayer exposure to the housing market gain traction, according to data from the country’s banking regulator.

Mortgages that don’t require homeowner insurance surged 19 percent from a year ago, accounting for about 53 percent of the C$1.13 trillion ($864 billion) of home loans at Canada’s federally regulated banks, data from the Office of the Superintendent of Financial Institutions show. Insured home loans fell 6.5 percent from a year ago.

Uninsured mortgages have taken an increasing share of the nation’s housing loans since 2012 as the government moved to reduce the chances of the kind of taxpayer-funded bank bailouts that happened after the U.S. housing crash a decade ago.

Still, the slowdown of residential mortgage volumes continues, with banks posting a 5.3 percent increase from January 2017, down from a recent high of 6.6 percent in May, the data show. The trend reflects the sentiments of executives of Canada’s Big Six banks, who commented on a cooling mortgage market in recent weeks after reporting earnings results for the first quarter.

“The slowdown in mortgage growth has been evident since the middle of last year, reflecting the impact of prior policy measures, as well as three interest rate hikes by the Bank of Canada,” DBRS Ltd. said in a March 19 note.

In January, OSFI made it more difficult for those with more than a 20 percent down payment to qualify for loans. The measures, known as B-20 guidelines, requires borrowers to qualify at the greater of the Bank of Canada’s five-year benchmark rate or 2 percentage points higher than the offered mortgage rate. Prospective borrowers have increasingly been turning to alternative lenders to qualify.

“With new mortgage rules taking effect on January 1, home sales have showcased two straight months of declines,” Barclays Plc analyst John Aiken said in a March 16 note to clients. “While stronger home sales at the end of 2017 could still buoy mortgage growth in the second quarter, we anticipate new mortgage origination volume could be tested in the back half of the year.”

Chinese investment in Canadian property could be about to take a nosedive. That’s because, according to a recent survey, new regulations are making many would-be buyers think twice about getting into the Canadian housing market.

Last August, the Chinese government implemented new rules aimed at curbing foreign investment. Now, a new survey by commercial realtor Cushman & Wakefield has found that Chinese investors are having a harder time securing foreign property deals in 2018.

Nearly half of the Chinese investors surveyed found it “extremely difficult” to make acquisitions, while 10 per cent said it was “impossible.”

Those findings are backed up by the latest research from the University of Alberta China Institute, which has found that the value of major Chinese investments in Canadian real estate is becoming smaller.

In 2016, major investments were worth $3.05 billion — in 2017 they totaled just $1.47 billion.

In a statement, University of Alberta China Institute director Gordon Houlden writes that there’s been a “clear decrease” in investment, as “regulations do have an effect.”

But the rules are largely centred around large transactions, such as stopping state-owned enterprises from investing more than $1-billion in foreign real estate. It’s unlikely they will stop Chinese investors looking to buy smaller properties from entering the Canadian market.

In fact, according to a survey from Chinese real estate website Juwai.com, Canada is the third most popular investment location for Chinese investors in 2018.

“Over the past few years, we have seen changes in the primary motivations of new Chinese property buyers,” writes Juwai.com CEO Carrie Law, in a statement. “‘Own’ surpassed ‘investment’ in 2016 and hasn’t looked back. Now, buying for one’s own use motivates more than 65 per cent of Chinese buyers.”

Toronto was listed as the number one Canadian city of interest, followed by Montreal, Vancouver, Ottawa and Calgary.

By: Kerrisa Wilson, BuzzBuzzNews

Canada’s overall consumer debt continues to rise, spurred in part by an increase of uninsured mortgages.

And this increase in the proportion of uninsured mortgages is leaving Canada’s seven largest banks at risk of higher consumer lending vulnerability, according to a new report by Moody’s Investors Service published today.

Until now, low interest rates and unemployment have kept Canadian borrowers’ debt-servicing requirements manageable.

“High and rising household debt-to-income levels leave both borrowers and lenders vulnerable to an economic downturn, despite strong consumer credit quality metrics to date,” reads the report.

In the third quarter of 2017, the national household debt-to-disposable income ratio reached a record 171 per cent.

Although residential mortgage risk remains low, Moody’s says that the proportion of uninsured mortgages, including home equity lines of credit, has climbed to 60 per cent from 50 per cent five years ago.

The firm attributes this change to a variety of “macro-prudential measures” aimed at slowing house-price appreciation in Canada, such as mortgage stress testing.

“The decline in insured mortgages is a direct result of the Canadian government’s decision to restrict supply and increase premiums,” reads the report.

With interest rates on the rise, Moody’s notes that mortgage-servicing costs are likely to climb because nearly half of outstanding mortgages are due for interest rate renewals within a year, adding further strain on households’ debt-servicing capacity.

Out of Canada’s largest seven banks, CIBC has the largest exposure to Canadian residential mortgages and the greatest proportion of uninsured mortgages.

In addition to a rise in uninsured mortgages, Moody’s says other risks to the banks include credit card losses and longer auto loan terms.

By Maciej Onoszko, Bloomberg

Canada’s mountain of consumer debt is triggering multiple alarms about the threat to the country’s banks.

Moody’s Investors Service joined the Bank for International Settlements and S&P Global Ratings which have all warned in the last month that Canada’s banking system, dominated by five giants, is facing a growing threat of souring consumer loans amid rising interest rates. The country’s ratio of household debt to disposable income reached a record 171 percent in the third quarter of last year.

The proportion of uninsured mortgages has increased to 60 percent from 50 percent five years ago, including home equity lines of credit, amid government efforts to reduce taxpayer exposure, according to the report from Moody’s on Tuesday. Canada Mortgage and Housing Corp., a government agency, insurers the bulk of mortgages in Canada.

Almost half of outstanding mortgages, many of them on fixed-rate terms, will have an interest-rate reset within the year, increasing the strain on households’ debt-servicing capacity, Moody’s said.

Further aggravating the situation are auto loans which are getting offered at terms as long as 68 months, authors of the report said. With these long terms, the car’s value often drops below the amount of the loan before it’s paid off.

Yet it’s the unsecured credit-card portfolios that will be the first to feel the pinch as their repayment tends to have lower priority for financially strapped borrowers.

All of these consumer loans have so far performed well in Canada as the country boasts the lowest unemployment rate in four decades. The arrears rate is only 0.24 percent for residential mortgages — seven basis points below the 10-year average, while the auto-loan delinquency rate is only 1.5 percent, Moody’s said. Canadian banks have also earned a reputation of being well-managed, conservative institutions after passing through the global financial crisis relatively unscathed.