2020 will be a huge moment for the Canadian mortgage market

A rush of homeowners are going to renew mortgages next year and when they do, they’ll most likely be faced with higher interest rates than when they signed on last. Will they be able to keep up with payments?

At least one expert is concerned by the prospect facing the housing market, given five-year fixed-rate mortgages are the most popular type in Canada, and 2015 was one of the busiest years for home sales on record.

“Where I get more concerned about housing actually is, as we move into 2020, is that the rate reset of five-year fixed rate mortgage holders moves higher again, 75 to 80 basis points,” David Doyle, an economist and markets strategist with Macquarie Group, tells BNN Bloomberg. “So that for me is a risk for 2020, that potentially, there’s another bout of weakness coming for housing across the country,” he continues.

Not everyone is so concerned.

“I don’t buy it,” Toronto mortgage broker Elan Weintraub tells Livabl. “Most people are making more money in 2020 than they are in 2015. Most people get raises, get bonuses, are further established in their career,” he continues.

These gains should more than offset any increase in mortgage rates compared to five years ago. Not too mention homeowners will have spent the past five years paying down their debt, giving them the chance to refinance.

Weintraub expects consumers should still be able to obtain five-year fixed rates of around 3 percent next year, which isn’t so far off the 2.39 rates he said were available in 2015.

”The word rate reset I would strongly associate with the United States financial crisis,” notes Weintraub, who notes increases then were much sharper.

“I think that rates might be a little bit higher — the stress test will impact that — but again, you’re borrowing less money because you’ve paid it down over five years,” he adds.

The stress test for uninsured mortgages, which requires borrowers to qualify at a rate that is 200 basis points higher than their contract dictates, applies again if a borrower wants to switch lenders.

“Basically what that does is it gives incentive for the current lender to take files that they might think the people won’t pass the stress test, and just give them a poorer rate, because there’s competition, right?” says Weintraub.

Of course, that might not be the case come 2020. Official Opposition Leader Andrew Scheer has pledged that if his Progressive Conservative government defeats Prime Minister Justin Treadeau’s Liberal government rules would be changed to let qualified borrowers switch lenders upon renewal without having to pass the stress test yet again.

That’s a move Will Dunning, an economist who writes reports for industry group Mortgage Professionals Canada, supports.

Like Weintraub, Dunning, who expects five-year fixed-rates could reach 3.25 to 3.5 percent in 2020, isn’t worried about a wave of defaults. He cites rising incomes as well.

“I can’t imagine there are going to be a lot of renewing out of five-year mortgages next year that are going to be in difficult situations,” Dunning tells Livabl. “There will be some, but I don’t think it should be creating as much worry as it seems to be in some quarters,” he adds.

Josh Sherman