Mortgage Trends to Look Out For in 2016
It’s been an exciting year for housing. Record low interest rates, sky high prices, and housing bubble fear defined 2015. 2016 will probably be just as exciting.
Even experts on real estate didn’t really see the record low interest rate coming until BoC governor Stephen Poloz made the calls, and now that the year is coming to an end it’s time once again to look forward and try our best to guess what is to come. So here are four mortgage trends coming next year according to The Globe and Mail.
Higher default rates
Canada’s economy has been limping since the beginning of the year and next year isn’t looking very promising either. The slow economy may lead to more job loss and missed payments. Right now only 27 out of every 10,000 borrowers are 90-plus days behind on their payments. While higher unemployment may not dramatically increase that number it’s doubtful such a low number will hold.
Lower Rates Offset Higher Rates
Despite already being at a record low the BoC may cut rates again if the economy continues to struggle. However it may not translate to as many savings as you think. That’s due to a couple of factors that will make it slightly more expensive for banks to sell mortgages. That cost will be passed on down to consumers.
Ontario and B.C. will continue to skew the market
While most of the country is performing fairly averagely, these two provinces are breaking records left and right. The revised minimum down payment rules coming into effect next year may not make a big difference to things in Vancouver or Toronto, but it will likely curb high-end home sales in weaker markets.
More private lending
With the government tightening mortgage rules, lenders who are willing to service riskier clients will see an uptick in business. “ Most notably, they’ll have more money to lend as new regulations make it easier for private mortgage investment corporations to raise capital. This means more competition for borrowers who can’t qualify at a bank, pushing down private lending rates and raising the amount private lenders will lend, relative to home values. It’ll also encourage more bundling. That’s where you get a regular mortgage for 75 per cent to 80 per cent of your home value and add a second mortgage for up to 90 per cent, all without the need for default insurance (which is normally required when your equity is less than 20 per cent). Concerned policy-makers will watch this so-called “shadow lending” activity with eagle eyes in 2016.”
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