New home purchases are the main driver of mortgage debt

What you need to know about mortgage growth, mortgage arrears and alternative lenders in the third quarter of 2021. Get all the details in our winter 2022 Residential Mortgage Industry Report Dashboard.

Mortgage growth continued to increase

Mortgage growth continued to increase in the third quarter of 2021. It went up 10%, bringing total residential mortgage debt in Canada to $1.77 trillion. Since the beginning of the pandemic, chartered banks (+11%) continue to heavily outpace non-banks (+4%) in terms of year-over-year growth of their mortgage portfolio.

Purchase of new property is the main driver of mortgage debt for chartered banks, especially in the uninsured space. In the third quarter of 2021, close to $58 billion worth of residential mortgages were extended. This is an increase of 60% compared to the same period in 2020 and almost double what was extended in the same period of 2019.

Refinancing also contributed to the increase in mortgage debt, (+16%) year-over-year. This is due to mortgage borrowers capitalizing on the low interest rate environment and added equity due to house price increase.

A larger share of uninsured mortgages was originated with higher total debt service ratios. Among these mortgages, more than a quarter of uninsured mortgages had a ratio over 40% compared to 6% of insured mortgages.

Moreover, the share of uninsured new mortgages with a ratio of 40% or less was on a downtrend since the second half of 2020. This decreased further in 2021, resulting in more leveraged borrowers.

Mortgages in arrears continued to drop in the first half of 2021 for all mortgage lenders:

• 0.18% for chartered banks
• 0.12% for credit unions
• 0.86% for mortgage investment entities

Factors contributing to the ability of Canadians to make the mortgage monthly payments on time included:

• High housing prices coupled with liquid housing markets, making it easier to sell the property rapidly.
• Greater consumer savings and the growth in disposable income.

Alternative lenders slightly picked up mortgage lending activity in the second quarter of 2021. This comes after a significant slowdown in the first year of the pandemic, as uncertainty rose and investors increasingly requested redemptions. This recent growth was likely stimulated by:

• higher demand in the context of rising housing prices
• relatively low interest rates
• slight regulatory changes

During the second quarter of 2021, the higher share of first mortgages and lower loan-to-value on newly originated mortgages decreased the risk of their portfolio. In addition, geographical distribution slightly shifted as Québec’s share increased from 3.7% to 5.3%.

Sources: Mortgage Investment Corporations (MIC) Survey, Fundamentals Research Corp, second quarter of 2021

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Related links

• Housing Market Outlook
• Housing Market Assessment