22 May, 2019 09:30
Photo : Freepik
The number of Canadians using mortgage insurance is on the decline, says the firm’s rating DBRS. She has done an analysis of this market in a report entitled, The Canadian insured mortgage sector – slowing housing activity and regulatory actions weighting on insured mortgage volumes.
This regulated market contains few players. We find the canada mortgage and housing, Canada Guaranty Mortgage insurance Company and Genworth Financial Mortgage Insurance Company of Canada.
The insurance companies offering this coverage find a decrease in the revenues related to that market since 2015, after having experienced an increase in 2013 and 2014.
Decrease of 27 % in four years
The volume of new insured mortgages has declined from around 27 % in four years, from 73,2 billion dollars (G$) in 2015 of dollars of volume to 53,6 G$ in 2018.
This decline, according to DBRS, is explained by a slowdown in the real estate market in Canada. The cost of access to the property has increased markedly, which is one of the causes that justify this slowdown. The interest rates are high and the constraints multiply, for the obtaining of a mortgage and mortgage insurance, one can read in the report.
Among these constraints include the limitation on the amortization period of the loan to 25 years and the cap of one million dollars of the value of the home, preventing them to exploit the market of the high value.
These have led to a decrease in the number of buyers wishing to take out an insurance policy mortgage. Moreover, the market share of mortgages insured compared to those uninsured is declining since 2013, says DBRS.
Crisis around the rate of eligibility in 2017
In 2017, the Office of the superintendent of financial institutions (OSFI) has established an eligibility rate the higher mortgage rate, commonly called the rate of ” crisis simulation “. The latter only applies for an insured loan. This rate should be “the higher of the benchmark rate of five-years, as published by the Bank of Canada rate and mortgage loan contract plus 2%,” says OSFI
This constraint resulted in a decrease in the demand for mortgage insurance and increase the loans uninsured, notes DBRS. The Canadians had a higher propensity to save 20 % of the value of their home, and avoided to take a mortgage insurance, supporting the firm.
Better in 2018 ?
However, OSFI has made changes in 2018 to guideline B-20, bearing the name of Practices and procedures for underwriting residential mortgage loans. Now, all types of mortgage loans, insured or not, must comply with the rule of the rate of ” crisis situation “. Since the amendment of the guideline, the market share of insured mortgages has stagnated, says DBRS.
The firm also affirms that the rate of insurance premiums, the investment portfolio of the companies and the low unemployment rates in the country are there to limit the impacts of the slowdown of the real estate market. However, this trend is only on the short-term, one can read in the report.