Uninsured mortgages surge amid cooldown in housing activity

Uninsured products have taken an increasing share of the nation’s housing loans since 2012

Uninsured mortgages surge amid cooldown in housing activity

Canada’s uninsured mortgage market reached an 8-year high in January as government steps to reduce taxpayer exposure to the housing market gained traction, according to fresh numbers from the country’s banking regulator.

Mortgages that don’t require homeowner insurance surged 19% from a year ago, accounting for about 53% of the $1.13 trillion of home loans at Canada’s federally regulated banks, data from the Office of the Superintendent of Financial Institutions showed. Meanwhile, insured home loans fell 6.5% from a year ago.

Uninsured mortgages have taken an increasing share of the nation’s housing loans since 2012 as the government moved to reduce the chances of the kind of taxpayer-funded bank bailouts that happened after the U.S. housing crash a decade ago.

Read more: Bank of America to explore Canada’s uninsured mortgage-backed securities

Still, the slowdown of residential mortgage volume continued to make itself felt, with banks posting a 5.3% increase from January 2017, down from a recent high of 6.6% in May. The trend reflected the sentiments of executives of Canada’s Big Six banks, who commented on a cooling mortgage market in recent weeks after reporting earnings results for the first quarter.

“The slowdown in mortgage growth has been evident since the middle of last year, reflecting the impact of prior policy measures, as well as three interest rate hikes by the Bank of Canada," DBRS Ltd. said in a note, as quoted by Bloomberg.

In January, OSFI made it more difficult for those with more than a 20% down payment to qualify for loans. The B-20 guidelines require borrowers to qualify at the greater of the Bank of Canada’s 5-year benchmark rate or 2 percentage points higher than the offered mortgage rate. Prospective borrowers have increasingly been turning to alternative lenders to qualify.

“With new mortgage rules taking effect on January 1, home sales have showcased two straight months of declines,” Barclays Plc analyst John Aiken stated in a client note. “While stronger home sales at the end of 2017 could still buoy mortgage growth in the second quarter, we anticipate new mortgage origination volume could be tested in the back half of the year.”