February 26, 2025
February 26, 2025
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Section | Key Takeaways |
---|---|
Mortgage Market Overview | – Canada’s mortgage landscape is marked by rapid rate hikes after a long period of historically low interest rates.- Mortgage delinquency rates remain low overall, but missed payments are on the rise in Ontario and BC.- Renewals at higher rates create payment shocks for many households. |
Homeownership Challenges | – First-time buyers struggle with big down payments and strict mortgage stress tests.- Existing homeowners face higher monthly costs at renewal, especially those who locked in ultra-low rates or have variable-rate mortgages.- Highly indebted borrowers feel the most strain. |
Self-Employed Homeowners | – Qualification is tougher for business owners who have irregular or harder-to-verify incomes.- Lenders often require extensive documentation (financial statements, tax records, etc.).- Strategies include reporting higher taxable income, larger down payments, or using alternative lenders. |
Economic Impacts | – Rising mortgage payments reduce disposable income, putting a squeeze on consumer spending.- Household debt is at a record high, boosting financial vulnerability.- Housing is a key driver of Canada’s economy, so any major shift in mortgages affects overall growth. |
Government Policies & Regulations | – Extended amortizations and higher insured mortgage caps aim to help buyers cope with affordability challenges.- The Mortgage Charter and other measures encourage lenders to offer relief and ease switching at renewal.- The stress test and lender caps seek to limit risky lending. |
Regional Insights | – Ontario and BC lead in home prices and debt, with more pronounced payment challenges.- Prairie provinces and Atlantic Canada have more affordable markets, attracting interprovincial migrants.- Major cities like Toronto and Vancouver remain among the least affordable in the country. |
Overall Outlook | – Policymakers are balancing housing affordability with financial stability concerns.- Rate cuts may offer relief, but debt levels remain high.- Future policy changes, wage growth, and immigration patterns will help shape how quickly households recover financial breathing room. |
Canada’s mortgage landscape has been shaped by significant interest rate fluctuations in recent years. The Bank of Canada slashed its policy rate to a historic low of 0.25% in March 2020 to support the economy, then rapidly increased it to 5.0% by July 2023 – the fastest tightening on record (Bank of Canada Interest Rate 1935-2025 | WOWA.ca). This pushed up borrowing costs sharply: average five-year mortgage rates roughly doubled from the ~2.4% range in late 2021 to around 5.5–6% by 2023 (Bank of Canada Interest Rate 1935-2025 | WOWA.ca) (Canadian Banks to Withstand Higher Residential Mortgage Capital …). Such a steep rise, prompted by 30-year-high inflation, has made new mortgages and renewals far more expensive. As of early 2025, the Bank of Canada has begun slightly easing rates (policy rate at 3.00%) after inflation slowed (Bank of Canada Interest Rate 1935-2025 | WOWA.ca) (Bank of Canada Interest Rate 1935-2025 | WOWA.ca), but mortgage costs remain high by recent historical standards.
Despite higher interest costs, mortgage delinquency rates in Canada remain very low by international standards, with over 99% of borrowers up-to-date on payments ( Read the latest statistics on mortgages in arrears in Canada ). As of mid-2024, the national mortgage arrears rate was about 0.2% – a slight uptick from pandemic-era lows but still below pre-2020 levels (Fall 2024 RMIR shows rising debt, delinquencies and falling rates | CMHC). Banks report that Canada’s arrears rate is at its lowest in decades and well below levels seen in the US or UK ( Read the latest statistics on mortgages in arrears in Canada ) ( Read the latest statistics on mortgages in arrears in Canada ). However, there are early signs of strain: Ontario’s mortgage delinquency rate nearly doubled year-over-year to 0.22% in late 2024 (after interest rates surged), marking a recent high in that province (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24). Other regions have also seen increases – British Columbia’s arrears rate jumped ~38% and Quebec’s ~41% from 2023 to 2024 – though from very low bases (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24). In raw numbers, more than 11,000 Ontario mortgages recorded a missed payment in Q4 2024, almost three times the number two years prior (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24). These figures underscore that while delinquencies remain uncommon, higher borrowing costs are nudging some households into financial difficulty.
A major challenge looming over the market is the wave of mortgages up for renewal at much higher rates. After years of ultra-low interest rates, over 2.2 million Canadian homeowners will see their mortgages come due in 2025–2026 at rates far above what they originally locked in (Fall 2024 RMIR shows rising debt, delinquencies and falling rates | CMHC). Many of these borrowers secured rates in the 1–2% range during 2020–21 and will face renewal rates in the 5–7% range, creating significant payment shock (Fall 2024 RMIR shows rising debt, delinquencies and falling rates | CMHC). The Bank of Canada estimates about 60% of all mortgages will renew by the end of 2026, virtually all at higher rates than before (The impact of higher interest rates on mortgage payments – Bank of Canada). Already, roughly 25% of mortgage holders saw their monthly payments jump by over $150 upon renewal in late 2024 as pandemic-era mortgages reset (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24). Lenders and regulators are bracing for this “renewal cliff,” as even well-qualified borrowers may struggle with the sudden increase in payments (Fall 2024 RMIR shows rising debt, delinquencies and falling rates | CMHC) (Fall 2024 RMIR shows rising debt, delinquencies and falling rates | CMHC). Consumers are trying to cope through strategies like extending amortization periods or tapping savings. Indeed, a subset of variable-rate mortgages with fixed payments have hit their trigger rate, causing unpaid interest to accumulate (“negative amortization”) – about a quarter of such loans hit this point by late 2023 (The impact of higher interest rates on mortgage payments – Bank of Canada) (The impact of higher interest rates on mortgage payments – Bank of Canada). These borrowers have kept monthly payments unchanged for now, but will face steep hikes at renewal to catch up on owed interest and return to the original amortization schedule (The impact of higher interest rates on mortgage payments – Bank of Canada). Overall, the payment increase upon renewal is expected to average ~30–40% for many households, and significantly more (50% or higher) for those who took on variable-rate mortgages at the bottom of the rate cycle (The impact of higher interest rates on mortgage payments – Bank of Canada) (The impact of higher interest rates on mortgage payments – Bank of Canada).
Housing affordability in Canada has deteriorated to its worst level on record in recent years. In late 2023, the cost of owning an average home required about 63% of a median household’s income – an all-time high (Home affordability improves, but still challenging for many Canadians: RBC report – Mortgage Rates & Mortgage Broker News in Canada). Major cities like Toronto saw ownership costs reach ~84% of median income, and Vancouver an astonishing ~102% (meaning a representative home cost more than the entire income of a median household) (Housing Affordability Reaches Worst-Ever Level In Canada) (Housing Affordability Reaches Worst-Ever Level In Canada). This represents a dramatic decline in affordability: for example, in 2019 nearly 60% of Canadian families could afford a typical condo, but by 2023 only 44.5% could, and just 25.7% of households had sufficient income to purchase an average single-family home (Housing Affordability Reaches Worst-Ever Level In Canada). The squeeze is due to the combo of rapid home price increases (especially during 2020–2022) and the recent spike in interest rates. There has been some relief since mid-2024 as prices cooled and incomes rose – by Q3 2024, RBC’s affordability measure improved slightly to 58.4% of income from the peak, thanks to modest price declines and incomes growing ~4.4% year-over-year (Home affordability improves, but still challenging for many Canadians: RBC report – Mortgage Rates & Mortgage Broker News in Canada) (Home affordability improves, but still challenging for many Canadians: RBC report – Mortgage Rates & Mortgage Broker News in Canada). Nonetheless, affordability remains near worst-ever levels in many markets (Home affordability improves, but still challenging for many Canadians: RBC report – Mortgage Rates & Mortgage Broker News in Canada), keeping home ownership out of reach for many Canadians.
Canadians have responded by taking on larger debts and longer amortizations. Household debt (including mortgages, credit cards, lines of credit, etc.) has swelled to about $2.56 trillion as of late 2024, up 4.6% from a year prior (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24). Mortgage debt alone accounts for roughly $2.2 trillion of that total (as of mid-2024), having grown ~3.5% year-over-year despite slower housing activity (Fall 2024 RMIR shows rising debt, delinquencies and falling rates | CMHC). With borrowing costs high, consumer credit balances are also rising – credit card debt jumped about 7.8% in 2024, and usage of non-bank loans (e.g. auto financing) is up as well (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24) (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24). Importantly, many Canadians are stretching their finances to manage housing costs: a significant number of mortgage holders have tapped home equity lines of credit or other credit to stay afloat (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24). While overall delinquency rates on consumer debt remain low, non-mortgage delinquencies have climbed (e.g. Toronto’s 90+ day non-mortgage delinquency hit 2.06% in late 2024, reflecting mounting financial stress) (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24) (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24). In short, heavy debt loads and high housing payments are straining household budgets, raising concerns about Canadians’ financial resilience.
First-time buyers in Canada face an uphill battle. Sky-high home prices and stricter mortgage qualifications have made it increasingly difficult for young Canadians to enter the housing market. Accumulating a down payment is a major hurdle – with average home prices in the hundreds of thousands, the required 5–20% down payment can take years to save. Many first-time buyers now rely on family assistance: 27% of recent homebuyers received a financial gift to help fund their down payment, a share that jumps to 43% among buyers aged 18–24 (THE STATE OF HOMEBUYING IN CANADA 2023 CMHC Mortgage Consumer Survey). More than one-third of those who received gifted down payments said they could not have purchased a home otherwise (THE STATE OF HOMEBUYING IN CANADA 2023 CMHC Mortgage Consumer Survey). This highlights how parental support is increasingly crucial for young buyers. Even with a down payment, mortgage stress tests pose another challenge – all borrowers must prove they can afford payments at an interest rate ~2% above their actual rate (a minimum qualifying rate of 5.25% or higher) (Canada regulator to cap number of mortgages to highly indebted borrowers | Reuters). With today’s contracts often around 5%, first-timers effectively must qualify at 7%+ interest, limiting how much they can borrow. In practice, many aspiring buyers find they cannot qualify for the home price they want, or face significantly higher monthly costs than a few years ago. As a result, the average age of first-time purchasers has been rising and more Canadians are delaying homeownership or remaining renters. Surveys show nearly half of young adults feel priced out of the market and worry that homeownership is increasingly out of reach (THE STATE OF HOMEBUYING IN CANADA 2023 CMHC Mortgage Consumer Survey) (THE STATE OF HOMEBUYING IN CANADA 2023 CMHC Mortgage Consumer Survey). Those who do buy often opt for smaller homes or condos, or move to cheaper regions, to make ownership feasible. Overall, first-time buyers are contending with the toughest conditions in decades: high prices, high rates, and lending rules that demand robust finances.
Existing homeowners have benefited from past price gains, but many now face new pressures. For those who bought or last renewed their mortgage when rates were low, the prospect of renewal at today’s rates is a major concern (as discussed, millions will see payment spikes). Homeowners with variable-rate mortgages have already felt the impact of rising rates: those with adjustable payments saw their monthly payments jump roughly 70% on average from early 2022 to late 2023 as the prime rate climbed (The impact of higher interest rates on mortgage payments – Bank of Canada) (The impact of higher interest rates on mortgage payments – Bank of Canada). Meanwhile, a large cohort with variable rates but fixed monthly payments have quietly accumulated additional debt – many of these loans are now negatively amortizing, with balances growing because the set payment no longer covers interest at the current rate (The impact of higher interest rates on mortgage payments – Bank of Canada) (The impact of higher interest rates on mortgage payments – Bank of Canada). Banks have allowed these borrowers to temporarily extend their effective amortization periods well beyond the original 25–30 years to avoid immediate payment hikes. However, this is only a short-term fix; at renewal the payment will be recalculated to the normal amortization, resulting in a very sharp increase (often 50%+ higher payments) for those who had been on static payments (The impact of higher interest rates on mortgage payments – Bank of Canada). Even fixed-rate homeowners are not immune – anyone who locked in a 5-year mortgage in 2018–2021 at ~2–3% will face rates around 5–6% at renewal, translating to hundreds of dollars more per month in interest.
Beyond mortgages, many homeowners have high overall debt loads, often due to home equity lines of credit (HELOCs) or consumer loans taken on against rising home equity. The Bank of Canada has flagged that nearly 1 in 4 recent borrowers are “highly indebted,” owing more than 450% of their income ([PDF] The Real Story Behind Housing and Household Debt in Canada). These households are especially vulnerable to financial stress – their debt payments consume a large share of income, so rate increases or income loss can quickly make their loans unmanageable. Indeed, as rates climbed, banks reported an increase in homeowners reaching out for relief or restructuring. On a positive note, strong employment and home equity cushions have so far helped keep defaults low. Many owners have options to mitigate payment strain: for example, refinancing to a longer amortization, consolidating higher-interest debts into the mortgage, or even selling and downsizing if necessary. Banks have also been proactive in offering loan modifications – under a government-supported “Mortgage Charter,” lenders are expected to help households in hardship with measures like temporary payment deferrals or extending amortizations (Government announces boldest mortgage reforms in decades to unlock homeownership for more Canadians – Canada.ca) (Government announces boldest mortgage reforms in decades to unlock homeownership for more Canadians – Canada.ca). Still, for heavily leveraged homeowners, the adjustment to higher interest rates is a significant source of anxiety. In late 2024, 7 in 10 mortgage holders reported feeling anxious about upcoming renewals and potential payment increases (according to consumer surveys). Existing homeowners with modest debt and stable fixed-rate loans are in a better position, but those who stretched their budgets in the low-rate era face a challenging period ahead.
“Highly indebted” borrowers – often defined as those with a debt-to-income ratio above 450% – are a focal point of concern for regulators. During the housing boom of the pandemic, the share of new mortgages going to such borrowers reached record highs (near one-third of new loans at peak) ([PDF] The Real Story Behind Housing and Household Debt in Canada). Many Canadians maximized their borrowing capacity to afford homes, taking on mortgages several times their annual income. This group is particularly exposed to financial trouble from rising rates or any loss of income. Their mortgage payments plus other debt obligations tend to eat up a large portion of household income, leaving little room for error. Unsurprisingly, as rates have risen, it’s this segment showing the most strain – for example, a disproportionate share of early delinquencies are among borrowers with high debt service ratios. In Ontario, the spike in missed mortgage payments in 2024 was largely attributed to first-time buyers and others who bought at the peak with maximum debt (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24). Recognizing the risk, regulators are taking action: the federal banking regulator (OSFI) announced it is capping the volume of new highly-leveraged mortgages that banks can issue. Starting in 2024–25, lenders will have limits on the proportion of their portfolio that can exceed a 4.5x loan-to-income ratio (Canada regulator to cap number of mortgages to highly indebted borrowers | Reuters) (Canada regulator to cap number of mortgages to highly indebted borrowers | Reuters). This policy aims to prevent excessive high-DTI lending during future low-rate periods and gradually curb the overall risk level of mortgage books. Additionally, all borrowers (especially those with high debts) remain subject to stringent stress testing at origination to ensure they could handle further rate increases (Canada regulator to cap number of mortgages to highly indebted borrowers | Reuters). In practice, many heavily indebted households are coping by cutting expenses and prioritizing debt repayment. As noted by Equifax Canada, “mortgage holders will typically do everything they can to keep up with payments” – often sacrificing other spending to do so (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24). Nonetheless, this segment represents a vulnerability: if unemployment were to rise or house prices fall significantly, highly indebted homeowners could be the first domino in broader credit problems. Their fortunes will be an important barometer of the overall financial stability in the household sector.
Self-employed individuals make up a substantial part of Canada’s workforce (about 2.6 million Canadians identified as self-employed in 2022) (A closer look at self-employed homebuyers – Mortgage Rates & Mortgage Broker News in Canada), and many aspire to homeownership. However, qualifying for a mortgage can be notably more difficult for self-employed borrowers compared to those with traditional salaried jobs. The primary challenge is proving stable, sufficient income. Lenders typically require at least two years of financial statements or tax Notices of Assessment to document a self-employed borrower’s income (Self-employed Mortgage Loan | National Bank) (Self-Employed Mortgage | What are the Requirements? | Ratehub.ca). Unlike a salaried employee who can show T4 slips or a steady paycheque, a business owner’s income may fluctuate year to year and often includes deductible expenses that reduce taxable income on paper. Banks focus on net income (after expenses) as reported to Canada Revenue Agency, which for many self-employed can be much lower than their gross revenue ([
<span class="hljs-symbol">Maximize</span> Tax <span class="hljs-keyword">Benefits: </span><span class="hljs-keyword">Self-Employed </span>Mortgage Qualification
](https://www.thrivemortgage.ca/maximize-tax-benefits-self-employed-borrower-mortgage-qualification#:~:text=Self,keeping%20and%20reporting)). This means someone might actually have healthy cash flows, but if they write off a lot of business expenses (to minimize taxes), their official income may appear too low to qualify for the mortgage they could realistically afford. The result is that many self-employed homebuyers cannot qualify for as large a mortgage through traditional underwriting and may be approved for a smaller loan than an equivalently earning salaried borrower.
In addition to income verification, lenders look at the stability and history of the business. Most mainstream lenders require that a self-employed person have at least two full years of successful self-employment (with supporting tax returns) before they will lend without additional backup (Self-employed Mortgage Loan | National Bank). If the business is newer or income is inconsistent, the borrower may be viewed as higher risk. Documentation demands are higher as well – aside from tax returns, lenders often ask for financial statements, business licenses, GST/HST returns, and contracts to gauge the viability of the enterprise (Self-employed Mortgage Loan | National Bank) (Self-Employed Mortgage Requirements). Meeting these requirements can be onerous and time-consuming. Some self-employed individuals also face the issue of credit score or debt load if they’ve taken business loans or personally guaranteed debts for their company, which can affect their credit profile.
Higher interest rates and stricter lending policies in recent years have had a pronounced effect on self-employed homeowners. When interest rates were ultra-low, many self-employed borrowers managed to get mortgages through alternative qualifications or by using floating-rate loans. Now, with rates much higher, debt service ratios have risen, making it harder to meet the required thresholds under the federal stress test. Even if a self-employed borrower’s income has stayed the same, the qualifying interest rate is ~7% or more, shrinking the mortgage amount they can get approval for. Those who already have mortgages, especially variable-rate ones, have seen their payments jump just like other Canadians. But self-employed individuals might have less cushion if their business income hasn’t kept pace or if expenses (like supplies, fuel, etc.) also climbed with inflation. This can create a double squeeze on cash flow – higher personal mortgage costs and higher business costs. During economic downturns or slower periods, self-employed folks don’t have the assurance of a fixed salary, so high fixed mortgage payments can be a real strain.
Many turn to alternative lenders or special programs catered to the self-employed. Mortgage insurers and some banks offer “stated income” products where reasonable income projections are accepted in lieu of just tax returns, but these often require excellent credit and a larger down payment (e.g. 10–20% or more). Such loans might come with a rate premium due to perceived risk. Indeed, self-employed borrowers often pay slightly higher interest rates or fees if they go through alternative lenders (though there’s no fixed rule to charge more, risk-based pricing often leads to it) (Self Employed Mortgage – Options & Qualifications – WOWA.ca). For example, a prime borrower might get 5.5%, whereas a self-employed borrower with non-traditional documentation might get 6.5% with a “B lender.” Additionally, lending policies were updated in recent years to be more accommodating in some ways: in 2018, CMHC and other insurers relaxed certain criteria (such as allowing more flexible proof of income, like showing 12 months of bank statements or evidence of retained earnings for business owners) to help self-employed applicants qualify. Despite these tweaks, many self-employed Canadians still feel at a disadvantage under the one-size-fits-all federal stress test rules.
Given the hurdles, self-employed homeowners and buyers have adopted various strategies to improve their mortgage prospects:
By employing these strategies, many self-employed Canadians do successfully obtain mortgages and purchase homes. It often requires more foresight and flexibility – for example, planning mortgage applications around their business cycles and tax strategy – but it’s a path that a growing segment of the population navigates. Lenders, for their part, increasingly recognize the diverse nature of self-employment (from gig workers to consultants to small business owners) and are slowly adapting their products. Nonetheless, the self-employed must remain proactive and resourceful to overcome the financing challenges inherent in not having a traditional paycheck.
The trends in the mortgage market and household debt have significant implications for Canada’s broader economy. One immediate impact of higher mortgage rates and payments is a squeeze on consumer spending. Housing costs (mortgage payments, property taxes, etc.) are typically a household’s largest expense. As thousands of Canadians renew at higher rates or allocate more income to servicing debt, they have less disposable income for other purchases. Indeed, the Bank of Canada has noted that households are cutting back on discretionary spending – for example, some reports indicate that a growing number of Canadians are forgoing purchases, even essentials, to prioritize their mortgage (Fall 2024 RMIR shows rising debt, delinquencies and falling rates | CMHC) (Fall 2024 RMIR shows rising debt, delinquencies and falling rates | CMHC). In 2023, growth in household consumption slowed markedly to about 1.7% (down from 5%+ in 2022), and on a per capita basis, real consumer spending actually declined in consecutive quarters (The Daily — Gross domestic product, income and expenditure, fourth quarter 2023). This suggests that high inflation and debt costs are outpacing income growth for many families, forcing belt-tightening that acts as a drag on economic growth. Sectors like retail, hospitality, and automotive may feel the pinch as Canadians redirect dollars to interest payments. Equifax data show rising delinquencies not just in mortgages but also in credit cards and auto loans, which is another sign that financial stress is spilling into other credit products (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24) (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24). However, there is a silver lining: Canadians historically prioritize paying their mortgages above most other spending (Fall 2024 RMIR shows rising debt, delinquencies and falling rates | CMHC), which helps keep housing-related arrears low (good for bank stability), even if it means curbing consumption elsewhere.
At a macro level, Canada’s economy has long been heavily influenced by housing activity. Residential investment (home construction, renovations, and transaction costs) reached nearly 10% of GDP at the peak of the housing boom in 2021 (The Daily — Gross domestic product, income and expenditure, fourth quarter 2023) – an unusually high share. This cooled to about 7.7% of GDP in 2023 as housing markets slowed (The Daily — Gross domestic product, income and expenditure, fourth quarter 2023), subtracting from economic growth. When housing sales and construction slow, it ripples through the economy, affecting industries from construction trades and real estate services to furniture and appliances. We saw this in 2022–2023 when higher interest rates caused home sales to drop: housing investment fell in six out of seven quarters, and new construction declined over 10% annually (The Daily — Gross domestic product, income and expenditure, fourth quarter 2023). Now, with early signs of housing stabilizing (and interest rates possibly past their peak), housing may cease to be a drag on growth. But the concern is that the weight of consumer debt could act as a brake on Canada’s economic momentum for some time. Highly indebted households are more sensitive to economic shocks – if unemployment were to rise, they would likely cut spending drastically to avoid default. The Bank of Canada consistently cites elevated household debt as a key vulnerability for financial stability. A widespread inability of households to meet debt payments would put strain on banks and could lead to a broader credit crunch. Fortunately, as of late 2024, banks have increased loan-loss provisions proactively (Fall 2024 RMIR shows rising debt, delinquencies and falling rates | CMHC) and maintain strong capital, and there is no sign of a housing crash. The soft landing scenario is that households gradually adapt to higher rates, and debt levels relative to income start to come down (helped by wage growth and inflation reducing the real debt burden). This would be constructive for long-term economic health, even if the transition period dampens consumer-led growth.
In summary, Canada’s economy is feeling the effects of the mortgage and debt trends through moderated consumer spending, shifts in investment, and heightened sensitivity to financial shocks. Policymakers are watching closely: if mortgage delinquencies or debt defaults were to escalate, it could force interventions given the systemic importance of housing. Conversely, measures that restore housing affordability and keep debt burdens manageable (like income growth, rate relief, or targeted policies) will support a more resilient economy.
It’s worth noting the dual nature of housing’s impact on the economy: it can be a growth engine, but also a source of risk. During the pandemic recovery, housing market activity (soaring prices and sales) contributed significantly to GDP growth and boosted industries like construction and real estate. That created jobs and wealth, leading to positive “wealth effects” – homeowners felt richer and spent more. However, this came at the cost of Canadians piling on debt and pricing newcomers out, which are now the challenges to be managed. The current environment – with housing cooling and debt servicing rising – has a more mixed economic impact:
In conclusion, the mortgage and homeownership trends act as both a barometer and an influence on Canada’s economic health. Policymakers (at the Bank of Canada, Ministry of Finance, and regulators) are attempting to strike a balance where inflation is tamed and debt risks managed without causing a hard landing in the housing sector. The outcome will significantly shape Canada’s economic trajectory in the coming years.
The Canadian government and regulators have introduced several measures in the past couple of years to address housing affordability and mortgage stress. Notably, in September 2024 the federal government announced the “boldest mortgage reforms in decades” aimed at helping buyers and easing mortgage costs (Government announces boldest mortgage reforms in decades to unlock homeownership for more Canadians – Canada.ca) (Government announces boldest mortgage reforms in decades to unlock homeownership for more Canadians – Canada.ca). Key initiatives include:
Looking ahead, regulators continue to monitor and adjust policies in response to market conditions. The Office of the Superintendent of Financial Institutions (OSFI) – Canada’s banking regulator – is particularly focused on mortgage risk. In early 2023, OSFI launched consultations on debt serviceability restrictions beyond the existing stress test. By March 2024, it announced the aforementioned limits on highly leveraged loans for banks, effectively setting a cap on the proportion of new mortgages with loan-to-income above 4.5 (Canada regulator to cap number of mortgages to highly indebted borrowers | Reuters). This is set to take effect in 2025 and will not apply to insured mortgages (which are already subject to other rules) (Canada regulator to cap number of mortgages to highly indebted borrowers | Reuters). OSFI has indicated this approach allows banks to continue competing, but ensures none load up excessively on risky loans (Canada regulator to cap number of mortgages to highly indebted borrowers | Reuters). In addition, OSFI has adjusted capital requirements so that lenders hold more capital for certain mortgage exposures – for example, loans with longer amortizations or those in negative amortization now carry higher capital charges, which discourages banks from letting too many mortgages extend far beyond 30 years (Canadian banks see dip in 30 year-plus mortgages, but risks remain).
The mortgage stress test itself (the minimum qualifying rate) is under periodic review. As of 2023, the rule remains that borrowers must qualify at the higher of 5.25% or contract rate + 2% (Canada regulator to cap number of mortgages to highly indebted borrowers | Reuters). If interest rates decline significantly, there could be calls to recalibrate this floor. Conversely, if housing markets heat up again, OSFI could tighten the test or other underwriting criteria. Thus far, policymakers have resisted loosening the stress test despite industry lobbying, prioritizing prudence given high household debt.
On the political front, housing affordability remains a hot issue. We may see additional government interventions: proposals floated include expanding rent-to-own programs, temporarily waiving GST/HST on new rental developments (already introduced for new apartment builds in 2023), and even discussions about collaborating with provinces to remove zoning hurdles that limit housing supply. A Home Buyers’ Bill of Rights has been promised, which could ban blind bidding in real estate transactions and ensure conditions for home inspections – these measures aim to protect buyers in hot markets and were in development as of 2024 (Government announces boldest mortgage reforms in decades to unlock homeownership for more Canadians – Canada.ca). Also under consideration are ways to help the most stretched mortgage holders: for instance, tweaks to consumer-protection regulations to ensure banks offer renewal options with no increase in payment for a period, or encouraging longer-term fixed mortgages (like 7- or 10-year terms) to give borrowers more stability.
It’s also worth noting that monetary policy (interest rates), while independently set by the Bank of Canada, is a de facto part of the policy mix affecting mortgages. If inflation continues to cool, rate cuts in 2025 would alleviate some mortgage stress. In its communications, the Bank has explicitly acknowledged that elevated rates are painful for many mortgage-holders, but deemed necessary to restore price stability (The impact of higher interest rates on mortgage payments – Bank of Canada) (The impact of higher interest rates on mortgage payments – Bank of Canada). Should the economy falter, the Bank could loosen policy sooner, which would filter through to lower mortgage rates and improved housing affordability.
In sum, governments and regulators have been active in enacting policies to balance the housing market – trying to support would-be homebuyers and existing owners facing challenges, without reigniting excessive price growth or risking financial stability. Measures like extended amortizations and higher insured mortgage caps directly assist buyers, whereas OSFI’s limits and stress tests aim to keep lending standards sound. The policy environment will likely continue evolving, especially with affordability being both an economic and political priority. The combined impact of these policies will be seen in coming years: ideally, they contribute to a more sustainable housing market where Canadians can afford homes at reasonable risk levels, and the economy isn’t jeopardized by household debt.
Canada’s mortgage and homeownership trends show significant variation across different regions and cities, reflecting diverse housing markets:
Home prices and debt levels differ widely by province, leading to different experiences for homeowners. The table below illustrates a breakdown of average home prices by province (as of January 2025) and the annual price change:
Province | Avg. Home Price (Jan 2025) | YoY Price Change | |
---|---|---|---|
British Columbia | $955,100 | +0.2% | |
Ontario | $858,600 | +0.8% | |
Alberta | $511,200 | +5.9% | |
Quebec | $501,300 | +7.4% | |
Nova Scotia | $415,400 | +6.2% | |
Prince Edward Island | $365,400 | +3.7% | |
Saskatchewan | $342,600 | +6.8% | |
New Brunswick | $318,900 | +12.4% | |
Newfoundland & Labrador | $306,100 | +7.4% | |
Canada (Benchmark) | $709,200 | +0.1% ([Canadian Housing Market Report Feb. 20th, 2025 | Interactive Map – WOWA.ca](https://wowa.ca/reports/canada-housing-market#:~:text=British%20Columbia%24955%2C100%200.0,3.0%2512.4%25%20Newfoundland%24306%2C100%200.0%257.4)) |
Sources: Canadian Real Estate Association data (Jan 2025); annual change vs. Jan 2024 (Canadian Housing Market Report Feb. 20th, 2025 | Interactive Map – WOWA.ca).
This data highlights a few important regional insights:
Toronto (GTA) and Vancouver (GVA) are Canada’s largest and most expensive housing markets, and they drive many national trends:
In terms of policy impacts regionally, the foreign buyer ban and higher down payment requirements mainly affected Toronto and Vancouver (and to some extent Montreal). The insured mortgage changes (30-year amortization, $1.5M cap) will mostly benefit buyers in expensive markets (Toronto, Vancouver, Victoria, perhaps Ottawa) where home prices breach prior limits. Meanwhile, the bulk of new housing construction spurred by government programs is targeted at high-demand urban centers but also at growing mid-size cities where affordability is slipping (e.g., Hamilton, London, Halifax).
In conclusion, Canada’s housing and mortgage story is really a collection of regional stories. While nationwide trends set the backdrop (rising rates, high debt, policy changes), the on-the-ground reality for a homeowner in Vancouver vs. one in Regina is quite different. Vancouverites worry about astronomical prices and huge mortgages; Prairie residents might worry more about job security than housing cost. Atlantic Canadians are experiencing being part of a housing boom perhaps for the first time. Toronto and Vancouver remain the epicenters of risk (where a correction or surge would have outsized effects on the national figures). As we move forward, regional differences will continue – and perhaps even sharpen – as each local market responds to the economic and policy climate. Policymakers are cognizant of this and often tailor or target measures (for instance, some programs explicitly aim to help Atlantic or Prairie growth). For Canadians, the dream of homeownership and the burden of a mortgage are very much tied to where they live, not just national averages.
Sources: The information in this report is drawn from a range of reliable sources, including Bank of Canada analyses, Canada Mortgage and Housing Corporation (CMHC) reports, consumer surveys, credit bureau data, and news from financial media. Key statistics and claims are supported by citations: rising interest rate trends (Bank of Canada Interest Rate 1935-2025 | WOWA.ca), low delinquency rates and recent upticks (Fall 2024 RMIR shows rising debt, delinquencies and falling rates | CMHC) (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24), renewal risk figures (Fall 2024 RMIR shows rising debt, delinquencies and falling rates | CMHC) (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24), affordability metrics (Home affordability improves, but still challenging for many Canadians: RBC report – Mortgage Rates & Mortgage Broker News in Canada) (Housing Affordability Reaches Worst-Ever Level In Canada), consumer debt levels (Ontario’s mortgage delinquency rate nearly doubled in the final months of 2024 – CP24), government policy details (Government announces boldest mortgage reforms in decades to unlock homeownership for more Canadians – Canada.ca) (Government announces boldest mortgage reforms in decades to unlock homeownership for more Canadians – Canada.ca), and regional price data (Canadian Housing Market Report Feb. 20th, 2025 | Interactive Map – WOWA.ca), among others. These references provide further detail and context for the points discussed.