Mortgage Market Predictions for 2025
The Canadian mortgage market is expected to undergo significant changes in 2025, driven by various factors such as interest rates, loan-to-income ratios, and consumer behavior. Here are some key predictions:
1. Loan-to-Income Ratios: A Growing Concern
The increasing popularity of mortgage stress tests has led to a growing concern about the sustainability of household debt. As incomes rise at a slower pace than home prices, loan-to-income ratios will become a major issue in 2025. This may lead to a decrease in mortgage affordability and an increase in defaults.
2. Switching Lenders: A New Trend
With most mortgagors facing rates 200+ basis points above their previous deals, there will be a significant number of borrowers looking to switch lenders. This trend is expected to continue throughout the year as consumers comparison shop for better rates and terms.
3. Cross-Selling: A Competitive Advantage
Deposit-taking lenders are increasingly offering bundled pricing and cross-selling other financial products to customers. This strategy allows them to sacrifice upfront interest revenue in exchange for future sales opportunities. While this may benefit consumers, it will also put pressure on non-bank lenders that lack a diversified product suite.
4. Interest Rate Uncertainty: A Wildcard
The Bank of Canada’s interest rate decisions will play a significant role in shaping the mortgage market in 2025. As rates remain uncertain, lenders will need to adapt their strategies to respond to changing market conditions.
5. Debt Burden: A Growing Concern
The debt burden on Canadian households continues to rise, with non-mortgage debt loads increasing by +9.4% and +13.6% year-over-year in credit cards and auto loans, respectively. This will lead to a decrease in disposable income and an increase in the number of homeowners seeking cheaper accommodations outside urban cores.
Implications for Lenders
The predictions above have significant implications for lenders:
- Increased Switching Activity: Expect a surge in lender switches as borrowers seek better rates and terms.
- Competition from Cross-Selling: Non-bank lenders will need to adapt their strategies to compete with deposit-taking lenders that offer bundled pricing and cross-selling opportunities.
- Rising Debt Burden: Lenders will need to be cautious when lending to households with high debt ratios, as this may increase the risk of defaults.
Conclusion
While these predictions are not exhaustive, they provide a glimpse into the key trends that will shape the Canadian mortgage market in 2025. As lenders navigate these changes, it’s essential to remain agile and adapt to shifting market conditions.
Recommendations for Borrowers
- Comparison Shop: Take advantage of the increased competition by comparing rates and terms from multiple lenders.
- Assess Your Debt Burden: Carefully review your debt-to-income ratio and consider strategies to reduce your debt burden.
- Consider Switching: If you’re facing a significant rate increase on renewal, explore switching to a new lender.
About the Author
Robert McLister is a mortgage strategist, interest rate analyst, and editor of MortgageLogic.news. Follow him on X at @RobMcLister for the latest updates on the Canadian mortgage market.
