Are mortgage borrowers turning away from their banks at renewal time?

Homeowners increasingly looking around as renewal nears, says broker

Are mortgage borrowers turning away from their banks at renewal time?

Canada’s looming wave of mortgage renewals has long been flagged by regulators as a potentially huge risk for the national economy – and that reality has changed little even despite a recent central bank rate cut.

The Bank of Canada slashed its benchmark rate by 25 basis points at the beginning of June, the first move towards lower rates since March 2020 amid encouraging progress on inflation and other economic indicators.

Still, that’s a minor cut that by itself is unlikely to lower the overall threat to the economy posed by mortgage renewals at higher rates, as identified by both the Bank and the Office of the Superintendent of Financial Institutions (OSFI), Canada’s top banking regulator.

In its May Financial Stability Report, an annual assessment of economic risks, the central bank highlighted that the median monthly payment for variable-rate mortgage holders would jump by over 60% in the coming years.

Governor Tiff Macklem said in a press conference accompanying the report’s release that a sudden spike in Canada’s unemployment rate could “crystalize” mortgage vulnerability and increase instability. “More households won’t be in a position to pay that mortgage, particularly given the larger reset,” he pointed out.

“So it is a vulnerability. And the point here is households and banks need to get ahead of that. We know what’s coming.”

Growing trend sees borrowers shop around at renewal time

The mortgage industry has remained largely confident about borrowers’ ability to stomach higher rates, with many pointing out that clients appear well-positioned to absorb the shock of a jump in payments down the line.

Still, one Nova Scotia-based broker told Canadian Mortgage Professional there had been a clear uptick in borrowers exploring their options and potentially seeking new solutions for renewal time.

David Clarke (pictured top), a broker with TMG The Mortgage Group, said he’d been fielding plenty of calls from borrowers considering stepping away from their bank at renewal time. “I’ve never experienced more people actively trying to shop around their renewals before,” he said.

“Nova Scotia was slower to the mortgage broker trend but now a lot of people are getting their renewal notices, they’re freaked out, and they’re making the call. But it’s been nice to get that level of engagement.”  

Many banks are initially offering only “very non-competitive rates” to their clients, Clarke said, although they may sometimes make a last-ditch effort to undercut brokers if the borrower is gravitating towards a move elsewhere.

Brokers’ market share on the rise as uncertainty grows

Borrowers’ growing willingness to shop around could mark something of a departure from their habits last year. In 2023, 44% of mortgage holders accepted the initial rate offered by their lender at renewal in 2023, while just 8% said they had “significantly” improved that rate through negotiation.

That’s according to Mortgage Professionals Canada’s (MPC’s) latest State of the Housing Market report, which also shone a light on Canadians’ growing concern about their prospects approaching renewal.

One in 10 were having difficulty paying their mortgage today – up by 33% from the same time in 2022 – and 23% said their payments increasing, even by under 10%, would lead to further issues in meeting their mortgage requirements.

The broker share in Canada’s mortgage market jumped to 34%, an increase of five points from 2022, and hit the 45% mark among those who purchased in the last two years.

Clarke said he had noted growing dissatisfaction with bank options among mortgage borrowers. “The trust that clients have in their banks, it seems like it’s pretty gone,” he said.

 Unsurprisingly, growing affordability challenges mean plenty of clients are choosing to refinance rather than switch, getting other debt requirements in order as they wait for the market to turn.

Priorities for borrowers have changed recently, Clarke said, from mapping out a 10-year plan to putting together a strategy for the next three years. “Life here got really expensive very quickly,” he said. “I [say], ‘What do you think your house needs? What do you think your car needs?’ And we’re just trying to make a plan and see if they have the ability to even go through that.

“It’s been refinancing to try to drop their payments, pay stuff off, and help them kind of repair until maybe things get cheaper.”

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