Canadians are taking out fewer mortgages, according to the latest data from Statistics Canada — one that paints a picture of how stricter borrowing rules imposed by the federal government late last year in response to an overheated housing market are finally having a tangible impact on consumer debt.
Canadian households borrowed $22.2 billion in the first quarter of 2018, down from $25.4 billion in the previous quarter. But mortgage borrowing numbers were even more stark — they decreased to $13.7 billion in the first quarter of this year, the lowest level since mid-2014.
In 2016, Canada’s top banking regulator, the Office of the Superintendent of Financial Institutions (OSFI) started rolling out tougher new mortgage requirements for Canadians that effectively made it much harder for those on low incomes, or who have bad credit history to take out property loans. For instance, borrowers would have to proof their ability to meet mortgage payments on a rate two percent higher than the existing mortgage rate offered to them, in order to qualify for a loan.
In January 2018, the last phase of those new mortgage rules came into effect — this is the first piece of official data that reveals the impact these rules have had on Canadians’ ability to borrow.
The decline in mortgage borrowing also correlates to the overall cooling of housing sector, specifically in cities like Toronto and Vancouver, which saw home prices growing at double-digit rates in 2015 and 2016, pricing out a large number of Canadians and forcing the intervening hand of the government to correct the market. The value of residential resale activity, for instance, declined by 17 percent according to Statistics Canada.
Meanwhile, mortgage borrowing specifically amongst Canadian millennials has also taken a hit from tougher requirements. New data from credit bureau TransUnion shows new mortgage originations among millennials in Canada fell by 19.5 percent between the last quarter of 2017 and the first quarter of 2018. This stands in sharp contrast to mortgage originations amongst the pre-boomers (those born before 1946) which actually grew by 7.8 percent in the same period of time.
By no means do these new pieces of data indicate that Canadians have reigned in their spending habits. Overall household debt remains at over $2 trillion, one of the highest figures amongst G7 nations. Although the debt-to-income ratio — the amount of debt a household has for every dollar earned — fell in the most recent quarter, it still remains at 168 percent, meaning that for every dollar of income, an average Canadian household owes $1.68.