Mortgages coming due for renewal are staring down a hostile interest rate environment, and industry experts have told The Epoch Times that borrowers are in for a world of hurt.
“We’re looking at people getting renewal offers that are in [ranges of] 7 percent, high-sixes, mid-sixes—we used to have some rates that were in the fives; people could jump to [the] high fives, but that’s all gone,” said Ron Butler, owner of Butler Mortgage.
Mr. Butler says a growing number of Canadian households are consequently devoting at least half their net incomes every month to mortgage payments—and, in the case of condominium owners, that excludes monthly maintenance fees.
Borrowers who have been in static-payment, variable-rate mortgages, which would have been in the 2-percent range five years ago, face increases of between 6 and 7 percent.
“Now [they] have a slightly larger mortgage, drastically shorter amortization, [and] more than triple the rate,” Mr. Butler said, although he doesn’t anticipate these borrowers comprise a significant share of the mortgage market.
He added that the number of borrowers teetering on the precipice isn’t enough to disrupt the mortgage market. Many homes caught in power-of-sale are the result of, Mr. Butler cited as examples, owners who refinanced too often, relied too heavily on private lending, or who couldn’t finance renovations to completion.
That power-of-sales through banks are minimal is a positive sign, Mr. Butler also noted.
The Bank of Canada began its aggressive quantitative tightening regime in March 2022, which has hitherto resulted in 10 policy rate hikes totalling 475 basis points, bringing its overnight lending rate to 5 percent.
“You’ve got a bigger shock factor happening,” Pekoe Mortgages owner Daniel Johanis said. “The second thing is people were paying a lot more money for their homes just a couple of years ago than they were in 2018.”
Mr. Butler contends mortgage lenders aren’t offering competitive rates to borrowers whose mortgages are up for renewal because they know the B-20 mortgage stress test—which qualifies borrowers at the higher qualifying rate of 5.25 percent or 2 percent above the contract rate—applies to mortgage renewals with different financial institutions.
Mr. Butler calls that anti-competitive behaviour.
“You’re not increasing your mortgage—it’s not one penny of additional money you’re asking for,” he said, “but you’re being treated like you are asking for additional money. How anti-competitive do we have to be in this country?
“It’s going to be hard enough for people to qualify to even have a chance of shopping, but with the stress test on renewals, you can’t shop; you just have to take whatever your lender is offering you, which is senseless.”
James Laird, co-CEO of Ratehub.ca, says the mortgage stress test should be amended to exclude renewals with different financial institutions.
“I think that’s been a flaw, always has been,” he said. “We want consumers to be able to access the best rates. They should be able to do that, and when the competitors have a stress test and your existing lender does not, it really discourages shopping.”
Mr. Johanis says borrowers are at the mercy of institutions taking full advantage of a tighter lending environment. He added that, even though the qualifying rate remains 5.25 percent, qualifying 2 percent over a contract rate today is in the neighbourhood of 8 to 9 percent, and it’s prohibitive for a lot of Canadians already curtailing non-essential outlays.
“Let’s say you’re up for renewal and your current lender sends you a renewal offer that’s maybe half a percent or 1 percent higher than what you can get at a competing bank. It’s not exactly as easy as just saying, ‘I'll take that rate,’” Mr. Johanis continued. “The rules state that if you’re switching lenders, you have to go through the hoops.”
A countermeasure is to extend amortizations. However, a nascent trend has developed among seniors doing just that—amortizing beyond their life expectancies.
“We got to keep an eye on the aging demographic,” Mr. Johanis said. “We’re seeing people well into their retirement ages continuously coming back and saying, ‘We need to redo a mortgage.’
“Keep in mind, too, there’s a large population of retirees that are sitting on [a lot of] equity.”
“I think [it] is a very, very high probability that you’re going to see a flood of rentals that are not servicing themselves hit the market,” Mr. Iriotakis said.
He added that “real estate is a long-term game,” and should an investment property hit the open market, it could be at a loss for “anyone who’s bought in the last couple of years.”
