Risks remain in the mortgage market as a wave of borrowers still have to renew at higher rates, alternative lenders take a growing share of new mortgages and delinquency rates keep creeping up, Canada’s housing agency says.

The notes of caution in Canada Mortgage and Housing Corp.’s latest residential mortgage industry report out Monday came as overall, the housing market has held up well despite the higher interest rates and a tepid economy.

Mortgages more than 90 days past due made up 0.19 percent of the overall market in the second quarter of 2024, up from the record low of 0.14 percent in 2022, but still well below the 0.28 percent seen pre-pandemic, the agency said.

There is higher strain in the alternative lending space, which caters in part to borrowers who might struggle to qualify at the big banks because of their credit score or less steady income, and who generally pay higher interest rates to compensate for the risk.

Ninety-day delinquency rates at mortgage investment corporations surpassed pre-pandemic levels to reach 1.15 percent in the first quarter, up from 0.88 percent a year earlier.

For borrowers with single-family homes in the segment, the rate for those at the top 25 mortgage investment corporations more than 60 days behind in payments reached five percent in the second quarter, up from 1.7 percent in the fourth quarter of 2022.

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10/27/2024

The rising delinquencies come as the alternative segment is seeing faster growth and rising risk, CMHC said.

“In the second quarter of 2024 the risk profile for alternative lenders expanded, highlighted by a year-over-year increase in defaults and foreclosures within single-family segment,” the agency said in the report.

It also warned that alternative lenders have fewer mortgages where they’re first in line to be paid back and have higher loan-to-value ratios than a year ago.

The warning comes as the top 25 mortgage investment corporations saw their assets under management increase by 4.9 percent in the second quarter from last year, while the overall residential mortgage market grew by 3.5 percent.

CMHC said some 1.2 million mortgages are up for renewal in 2025 and that 85 percent of those were signed when the Bank of Canada rate was at one percent or lower, creating a risk of increased strain.

Borrowers up for renewal next year will face lower interest rates than many saw this year though, as the Bank of Canada has lowered its key rate four times already to what is now 3.75 percent, with more cuts expected ahead.

But it’s still a big jump from what interest rates were a few years ago, and comes as delinquencies on auto loans and credit cards are also climbing as many Canadians struggle financially.

“Mortgage delinquency rates continue to increase with indications for further increases in 2025,” the agency said.

“Also, high household debt and renewals at higher interest rates remain concerns for the Canadian economy.”