CMHC says mortgage risks remain as delinquencies creep up, alternative lending grows

OTTAWA – Risks remain in the mortgage market as a wave of borrowers still have to renew their loans at higher rates, alternative lenders' share of new loans is rising and rates remain unchanged, according to the Canada Mortgage and Housing Corporation (CMHC). Delays in payments continue to increase.

The cautionary notes in CMHC's new residential mortgage industry report released Monday come as, overall, the housing market has performed well despite higher interest rates and a not-so-strong economy.

According to the report, mortgages more than 90 days past due accounted for about 0.19 percent of the total market in the second quarter of 2024, up from a record low of 0.14 percent in 2022, but It is still much lower than the 0.28% before the pandemic.

The alternative lending sector, which targets a segment of borrowers with low credit scores or unstable incomes who may have trouble getting loans from big banks, is under more pressure, and these borrowers typically pay higher interest rates to compensate for the risk.

90-day delinquency rates at mortgage investment firms rose to 1.15 percent in the first quarter, higher than pre-pandemic levels and higher than 0.88 percent a year earlier.

For borrowers with single-family homes in the sector, the rate of those who were more than 60 days behind at the top 25 mortgage investment companies reached 5 percent in the second quarter, up from 1.7 percent in the fourth quarter of 2022.

The increase in delays coincides with faster growth and increased risk in the alternative sector, CMHC said.

"In the second quarter of 2024, the risk profile for alternative lenders widened, highlighted by year-over-year increases in defaults and foreclosures in the single-family home sector," the agency said in its report.

It also warned that alternative lenders have a smaller number of loans that are prioritized for repayment if paid off and have higher loan-to-value ratios than last year.

The warning comes as assets under management of the top 25 mortgage investment firms rose 4.9 percent year-over-year in the second quarter, while the overall residential mortgage market grew 3.5 percent.

CMHC said about 1.2 million mortgages are due for renewal in 2025, and 85 per cent of those loans were signed when the Bank of Canada rate was 1 per cent or lower, which could add to the pressure.

Borrowers who have to renew their loans next year will face lower interest rates than this year, as the Bank of Canada has already cut its key rate four times to 3.75 percent, with more cuts expected. be ahead

But still, these rates have increased significantly from a few years ago, and while delinquencies on car loans and credit cards are on the rise, many Canadians are struggling financially.

"Mortgage delinquency rates continue to rise, and there are signs of further increases in 2025," the agency said.

He also added: "High household debt and loan renewals at higher interest rates continue to be concerns for the Canadian economy."

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