Canadian mortgage growth is flying high again, and all it took was a little time (and lower interest rates).
Scotiabank Economics notes that Canadian household mortgage credit increased by 5.2 percent on a month-over-month basis in June, in seasonally adjusted terms.
Household mortgage credit hasn’t grown so rapidly since July 2017, according to Scotiabank.
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“Mortgage growth has surely rebounded after a period of deceleration from early-2017 to its mid-2018 trough which was induced by a series of measures aimed at tackling runaway home prices,” write Juan Manuel Herrera, a Scotiabank economist, and Alena Bystrova, a research analyst, in a report.
Specifically, Herrera and Bystrova refer to foreign-homebuyer taxes in Metro Vancouver, BC, and Ontario’s Greater Golden Horseshoe region, which includes the Greater Toronto Area.
They also cite mortgage stress testing that federal policymakers introduced in January 2018. The rules, drafted by the Office of the Superintendent of Financial Institutions, a financial-sector watchdog, set a higher bar for uninsured-mortgage applicants through a new stress test.
The test requires these borrowers to qualify at a rate that is either 200 basis points higher than what’s on their contract or matches the Bank of Canada’s qualifying rate — whichever is higher.
Similar testing had existed for the insured mortgage (mortgage insurance is required for those who don’t have a downpayment of at least 20 percent) since 2016.
“Real estate markets continue to adjust to regulatory changes and are now benefitting from a decline in borrowing rates after reaching an eight-year high in late-2018, alongside a tightening spell by the Bank of Canada,” the economists continue.
Herrera and Bystrova note that the rate of non-bank borrowing exceeded that of banks. However, mortgage credit tied to non banks remains in line with the long-run norm.
“Despite the faster pace of non-bank borrowing growth, it still occupies less than one quarter of market share,” the economists write, noting non-bank lenders represent 21.3 percent of the mortgage-credit market.