2025 Mortgage Market Predictions: A Year of Surprises
As we enter 2025, the mortgage market is bracing itself for a year of uncertainty and change. With interest rates remaining a wildcard and loan-to-income ratios coming under scrutiny, borrowers and lenders alike are navigating uncharted territory. In this article, we’ll delve into five key predictions that will shape the Canadian mortgage landscape in the coming year.
1. Loan-to-Income Ratios Take Center Stage
The government’s efforts to curb speculation and foreign buying have led to a decline in housing prices, making mortgage affordability a pressing concern. As incomes rise more than four percent annually, governments are dissuading foreign and speculative buying, and population growth is being pared back. This recipe should keep mortgage affordability from going further down the toilet.
However, interest rates remain a huge wildcard for 2025. While some experts predict a strong real estate market, others are more cautious, citing the unpredictable nature of interest rates. As a result, only one thing is certain: 2025 will bring plenty of surprises.
2. Debt-Service Ratios and Non-Mortgage Debt Loads on the Rise
Despite declining debt-service ratios, they remain near record levels. Moreover, non-mortgage debt loads have ballooned year-over-year, with credit card debt (+9.4 percent) and auto loans (+13.6 percent) leading the charge. As prices for services, food, property taxes, insurance, and other expenses continue to soar, many debt-laden consumers will need to find cheaper digs.
With work-from-home and hybrid work arrangements still prevalent, middle-class Canadians will increasingly look for new homes further from big city cores. This shift towards suburban living is set to become a defining trend in the 2025 mortgage market.
3. Switch Volumes Surge as Renewal Rates Soar
Payment shock awaits countless Canadian mortgagors when they renew this year, with most facing rates 200+ basis points above their previous deals. In an attempt 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.
Anticipating this potential exodus, lenders will sharpen their renewal rates to keep customers in-house. While this saves some borrowers the hassle of switching, with 1.2 million mortgages up for renewal – far above normal – expect plenty of mortgage musical chairs anyway.
4. Cross-Sale Drives Rate Competition
Deposit-taking lenders have increasingly been willing to sacrifice upfront interest revenue (i.e., offer fatter mortgage discounts) in hopes of cross-selling other financial products. This arrangement is a win for consumers, as they don’t have to buy those products even though they’ll be bombarded with offers.
The downside is that this trend will put a competitive squeeze on lenders that don’t have other financial services to sell (a.k.a. ‘monoline’ lenders). As a result, consumers can expect more aggressive marketing and promotional campaigns from lenders eager to cross-sell their products.
5. Rate Competition Intensifies as Lenders Fight for Market Share
In the end, while the above predictions don’t go too far out on a limb, only one thing is certain: 2025 will bring plenty of surprises. With interest rates remaining a wildcard and loan-to-income ratios coming under scrutiny, borrowers and lenders alike are navigating uncharted territory.
As the mortgage market continues to evolve, it’s essential for consumers to stay informed and adaptable. By understanding these key trends and predictions, Canadians can make more informed decisions about their mortgage choices and prepare themselves for the challenges and opportunities that 2025 will bring.
Robert McLister is a mortgage strategist, interest rate analyst, and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.
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