2025 Mortgage Market Predictions: A Look Ahead
As we step into 2025, the Canadian mortgage market is poised for significant changes. With interest rates remaining a wild card and debt loads continuing to rise, borrowers will face unprecedented challenges in managing their finances. In this article, we’ll delve into five key predictions that will shape the mortgage landscape in the coming year.
Prediction 1: Loan-to-Income Ratios Will Dictate Mortgage Affordability
With most incomes rising at a rate slower than four percent annually, loan-to-income ratios are likely to take center stage in determining mortgage affordability. Governments’ efforts to discourage foreign and speculative buying will also play a crucial role in keeping mortgage affordability from plummeting further.
Prediction 2: Debt-Service Ratios Will Continue to Climb
Despite a slight decline in debt-service ratios, they remain near record levels. The sharp increase in non-mortgage debt loads, such as credit cards (+9.4 percent) and auto loans (+13.6 percent), will continue to exert downward pressure on consumers’ ability to afford mortgage payments.
Prediction 3: Switch Volumes Will Surge
As payment shock looms for countless Canadian mortgagors renewing their mortgages this year, borrowers will be forced to comparison shop more aggressively in search of lower rates. Many with higher debt ratios will exploit new rules allowing them to switch lenders without passing the federal mortgage stress test.
Prediction 4: Cross-Sale Will Drive Rate Competition
Deposit-taking lenders are increasingly willing to sacrifice upfront interest revenue by offering fatter mortgage discounts in hopes of cross-selling other financial products, such as savings accounts, credit cards, and creditor life insurance. This trend will put a competitive squeeze on "monoline" lenders that lack a diversified product portfolio.
Prediction 5: Payment Shock Will Leave Homeowners Scrambling
As most borrowers face rates 200+ basis points above their previous deals, payment shock will be a harsh reality for countless Canadian mortgagors. To mitigate this effect, consumers will comparison shop mortgage rates more aggressively and exploit new rules permitting them to switch lenders without passing the federal mortgage stress test.
A Year of Uncertainty Ahead
While these predictions may not be too far out on a limb, one thing is certain: 2025 will bring plenty of surprises. Borrowers would do well to remain vigilant and adapt quickly to changing market conditions.
About the Author
Robert McLister is a mortgage strategist, interest rate analyst, and editor of MortgageLogic.news. Follow him on X at @RobMcLister for more insights into the Canadian mortgage market.
Sources:
- The Canadian Mortgage Rate Survey produced by MortgageLogic.news
- Postmedia and Imaginative. Online Inc., parent of MortgageLogic.news
This article has been updated to include a new prediction regarding cross-sale driving rate competition and a revised prediction on debt-service ratios continuing to climb.
