Rising interest rates, compounded by stricter qualification rules, led to a 16% decline in mortgage activity in Quebec last year.
At the same time, smaller and alternative mortgage lenders saw their market share rise during the year, according to a new study published by JLR.
The report, based on data from Quebec’s land registry, found a total of 266,000 mortgages were registered in the province in 2022, down 16% from 318,000 in 2021. While the data is based on all mortgage types, JLR notes that 90% are specific to residential mortgages.
“The uncertain economic situation, the rise in interest rates and inflationary pressures all contributed to a reduction in the number of new mortgage loans approved in 2022,” reads a translation from the report, which was published in French.
“Regulations on borrowing have been strengthened to reduce risks for lenders and borrowers, which led to lower mortgage approval ratios versus applications,” the report added. “In addition, interest rates have increased, leading to an increase in the cost of borrowing for potential buyers. Consequently, it is increasingly difficult for potential borrowers to qualify for loans that are subject to the mortgage stress test and that meet lenders’ criteria.”
The mortgage stress test is used by all federally regulated lenders to qualify borrowers using the higher of their contracted mortgage rate plus 200 bps or 5.25%, whichever is higher. Most uninsured mortgage rates available from the big banks and other national lenders have hovered between 5% and 6%, meaning borrowers must prove they can afford payments based on a qualifying rate of nearly 8%.
In terms of mortgage market share in the province, Desjardins remains the dominant lender with 39.4% of market share for new purchases. That’s down slightly from 40.3% in 2021.
The next biggest players in the market are National Bank (13%), RBC (10.2%), BMO (7.7%), TD (6.6%), CIBC (5.3%) and Scotiabank (4.7%).
The Big 6 Banks, along with Laurentian Bank and Desjardins, accounted for 86.6% of all new mortgages in Quebec in 2022, down from 88.5% in 2021.
Smaller and alternative lenders have been picking up market share as a growing number of borrowers find themselves unable to qualify for a mortgage from traditional lenders, the report found. Those lenders now hold 13.4% of market share, up from 11% in 2021.
“The tightening of mortgage lending standards as well as the skyrocketing interest rates have made obtaining credit from the eight largest financial institutions increasingly difficult for some mortgage borrowers,” the report reads. “As a result, there are fewer borrowers who can move from a small lender to a traditional lender at the end of their loan contract.”
The report referenced data from the Canada Mortgage and Housing Corporation (CMHC) that found a third of borrowers in the alternative lending space are needing to renew their mortgage with an alternative lender.
