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Rising mortgage debt in 2021

Mortgage debt grew at its fastest pace since 2008: CMHC

Record-low interest rates drove mortgage debt 9% higher on an annual basis in 2021, its fastest pace since 2008.

That pace of growth continued in the first two months of 2022, with year-over-year growth topping 10.6%, according to new data from the Canada Mortgage and Housing Corporation (CMHC).

In its bi-annual Residential Mortgage Industry Report, CMHC said the acceleration in mortgage borrowing was driven by increases in uninsured mortgages for both purchases and refinancing.

Residential mortgage debt 2021

Chartered banks saw new mortgage originations rise 43% compared to 2020, while refinances were up 22%. That translated into roughly $400 billion worth of residential mortgages being added to their balance sheets, CMHC said.

Meanwhile, credit unions added $54 billion worth of new residential mortgage debt to their portfolios.

Majority of Canadians took variable rates in 2021

With variable rates falling well below fixed rates in 2021, a majority of new borrowers (53%) opted for floating rates in the second half of the year, according to CMHC’s data. That was up from 34% in the first half.

It appears the share of variable mortgages reached a peak in January of 2022, with 56.9% of new mortgages being variable-rate products.

“While this trend has continued into the first couple of months of 2022, it seems to have plateaued in response to the recent increases in mortgage interest rates,” CMHC noted.

Borrowers were less leveraged than in 2020

CMHC’s data also showed a downward trend in the distribution of loan-to-values (LTVs) of new uninsured mortgages towards the end of 2021. The percentage of borrowers with an LTV of 65% or less grew to 38.2%, up from 37.1% in 2020, while those with an LTV of 75% to 80% fell to 44.2% from 45%.

Despite the recent pull-back, however, borrowers were still more highly leveraged compared to preceding years. In 2016 and 2017, the percentage of uninsured borrowers with an LTV of 65% or less was 43.5% and 42.8%, respectively.

Mortgage arrears fell across all lender types

CMHC reported that 90+ day delinquencies were down across the board for all lender types.

“Consumers either continued to make their mortgage payments on time or were able to reach an agreement to defer their mortgage payments during that period,” CMHC said. “The highly liquid housing markets have likely contributed to this downward trend.”

Among chartered banks, the arrears rate fell to 0.17% by the end of 2021, down from a high of 0.25% in Q3 of 2020. Credit unions reported an average arrears rate of 0.10% (down from 0.15% in 2020), while other non-bank lenders saw a rate of 0.23%, down slightly from 0.26% in 2020.

Mortgage Investment Entities (MIEs) had a markedly higher arrears rate at 1.38%, which was down from 1.78% in Q3 2020.