Loan-to-income ratios and mortgage switching are expected to dominate mortgage market conversations in 2025.

Mortgage Market Outlook 2025: Trends and Predictions

The Canadian mortgage market is expected to undergo significant changes in 2025, driven by various factors such as interest rates, debt levels, and consumer behavior. In this article, we will explore the key trends and predictions that will shape the mortgage landscape in 2025.

1. Loan-to-Income Ratios: A Growing Concern

The loan-to-income (LTI) ratio has been a contentious issue in recent years, with many experts warning about its potential impact on consumer debt levels. In 2025, we can expect LTI ratios to continue rising, making it more challenging for borrowers to secure mortgages.

Why: Higher home prices and increased debt loads have led to a rise in LTI ratios, making it difficult for borrowers to service their mortgage payments. This trend is expected to continue, with many consumers struggling to keep up with their debt obligations.

2. Switching Volumes Surge

As interest rates rise, many homeowners will face significant payment shock when they renew their mortgages. To mitigate this, Canadians are expected to comparison shop for better mortgage rates, leading to a surge in switching volumes.

Why: With over 1.2 million mortgages up for renewal, borrowers are likely to explore alternative lenders offering more competitive rates. This trend will put pressure on incumbent lenders to sharpen their renewal rates and retain customers.

3. Cross-Sale Gains Momentum

Deposit-taking lenders have been increasingly willing to sacrifice upfront interest revenue in exchange for cross-selling other financial products. This trend is expected to continue, driving rate competition and benefiting consumers.

Why: By bundling mortgage deals with other financial products, lenders can offer more attractive rates and increase customer loyalty. However, this approach may put pressure on monoline lenders that lack a broader product suite.

4. Debt Levels Continue to Rise

Despite some decline in debt-service ratios, Canadians are still carrying high levels of non-mortgage debt, such as credit cards and auto loans. This trend is expected to continue, with many homeowners struggling to service their mortgage payments.

Why: Rising prices for services, food, property taxes, insurance, and other expenses have led to increased debt loads. As a result, many consumers will need to find cheaper accommodations, leading to a surge in demand for homes outside of city cores.

5. Interest Rates Remain a Wildcard

Interest rates remain the most significant uncertainty in the mortgage market, with ongoing economic fluctuations making it challenging to predict their direction. In 2025, we can expect interest rates to continue playing a crucial role in shaping the mortgage landscape.

Why: The Bank of Canada and other central banks will closely monitor economic indicators, adjusting interest rates accordingly. This unpredictability will make it essential for borrowers and lenders to remain flexible and adapt to changing market conditions.

In conclusion, 2025 is expected to bring significant changes to the Canadian mortgage market, driven by various factors such as loan-to-income ratios, switching volumes, cross-sale trends, debt levels, and interest rates. While some predictions may seem alarming, it’s essential to recognize that the mortgage landscape is constantly evolving. By staying informed and adapting to changing market conditions, borrowers and lenders can navigate these challenges and thrive in a rapidly shifting environment.

Sources: