Canadian Banks Clamping Down on New Credit Issuance

Steve Saretsky -

As I had mentioned a few weeks ago, credit is only going to continue tightening from here. Not only have mortgage rates gone up, nearly 50bps, but we are now getting confirmation that banks are tightening the screws on new mortgage issuance. I highly recommend giving Ron Butler, of Butler Mortgages, a follow on Twitter- he’s been all over this.

As of April 09, all new mortgage applications will follow strict qualifications. Banks will be scrutinizing the sustainability of your employment, particularly for certain sectors that are more vulnerable to layoffs.

There will be more stringent criteria on rental properties, and as published now on RateSpy, some lenders are pulling back on HELOCs (Home Equity Lines of Credit). The days of using a HELOC to fund the downpayment on an investment property are coming to an end. This is a more common practice in the pre-sale condo space, so I suspect it could hit demand there.

Let’s be honest, credit has been very loose for a long time in Canada, as evidenced by our extreme levels of household indebtedness, so you can’t blame the banks for pulling the rug at a time when one million Canadians just lost their job in a single month.

Canada job loss March 2020
Canadian economy shed 1M jobs in March. Source: Bloomberg

The jobless rate surged to 7.8%, up from 5.6% in February, and will only continue growing from there. This is a serious risk for mortgage delinquencies, which will be delayed, but not eradicated, with mortgage deferrals.

RBC’s Dave McKay said his bank has already fulfilled 250,000 requests to do with credit products, including mortgage deferrals. He added “it is challenging for the bank to adjudicate loans and make credit decisions in an environment where many of RBC’s clients have no revenue.”


Join the Monday Newsletter

Every Monday morning you'll receive a short and entertaining round-up of news on the Vancouver & Canadian Real Estate markets.

"*" indicates required fields

The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

Get the Saretsky Report to your email every month

The Saretsky Report. December 2022