2025 mortgage markets: Loan-to-income ratios and switching

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In many ways, Canada’s mortgage outlook for 2025 seems as clear as an octopus playing charades. Much depends on unknown policies on the part of new governments — on both sides of the border — that could quickly reshuffle the deck on Canadian mortgage rates and real estate. We’ll know more later in the quarter, but for now, there’s enough clarity on certain points to make some not-so-bold predictions. With that said, here are five predictions for mortgages and housing in 2025.

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1. OSFI’s Loan-to-Income (LTI) rule will have force

Our banking regulator now caps the percentage of mortgages that can exceed 4.5 times the borrower’s gross income, but the limit varies by lender and is confidential. This means that mortgage approvals with many federally regulated lenders may be hidden and missed, if your LTI ratio is above this level. This uncertainty will lead to annoying inefficiencies for some borrowers in 2025, as their applications will be rejected unexpectedly, forcing them to apply to multiple lenders.

LTI limits could become a bigger drag if prices fall another 100 basis points or so. At that point, time lag injuries will become a more obvious constraint than the government’s current stress test on mortgages. Indeed, this may curb excessive borrowing so well that OSFI may pull the plug on its stress test by December.

2. Real estate gets a spring boost

Real estate has several tailwinds in 2025: relaxed mortgage insurance rules, income growth, improving market sentiment, lower prices, regional supply bottlenecks, and pent-up demand. No wonder professional crystal ball watchers are widely betting on home price gains of more than four percent.

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At the same time, most incomes are rising by more than 4 percent annually, governments are discouraging foreigners and speculators from buying, and population growth is declining. This prescription should prevent mortgage affordability from declining even further.

As for interest rates – the big driver of mortgage demand – they remain a huge alternative for 2025. That’s why your interest rates aren’t bold enough to confidently predict a strong real estate market.

3. Debt will leave more homeowners driving their cars longer

while Debt service ratios They rejected the touch, and were still close to the record. Non-mortgage debt loads — such as those from credit cards (+9.4 percent) and auto loans (+13.6 percent) — swelled year-over-year. This is in addition to rising prices for services, food, property taxes, insurance, and many other expenses. As a result, many debt-laden consumers will need to find cheaper accommodations, work from home and hybrid work arrangements. Still nothingmiddle-class Canadians will increasingly look for new homes away from the core of major cities.

4. Increase volume switch

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A payment shock awaits countless Canadian mortgagers when they renew their loans this year, with most facing interest rates more than 200 basis points higher than their previous deals. In an effort to lower monthly payments, Canadians will compare mortgage rates more aggressively. Many with higher debt ratios will take advantage of new rules that allow borrowers to switch lenders without having to pass a federal mortgage stress test. In anticipation of this potential exodus, lenders will increase renewal rates to keep customers in-house. While this saves some borrowers the hassle of switching, with 1.2 million mortgages up for renewal – far higher than usual – we expect a lot of mortgage musical chairs anyway.

5. Cross-selling will increase price competition

Deposit-taking lenders are increasingly willing to sacrifice upfront interest returns (for example, offering greater mortgage discounts) in the hope of cross-selling other financial products. I’m talking about products like savings accounts, credit cards, lines of credit, creditors’ life insurance, GICs and other investments.

This arrangement is a win for consumers because they do not have to buy those products, despite being bombarded with offers. The downside is that this trend will put competitive pressure on lenders that have no other financial services to sell (aka “single-line” lenders).

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(Side note, bundled pricing—where lenders offer a lower rate if you agree on other products—is not an illegal “resale,” although many mistake it as such.)

In the end, although the above predictions do not go too far, one thing is certain: 2025 will hold a lot of surprises.

Robert McAllister He is a mortgage strategist, interest rate analyst and editor MortgageLogic.news. You can follow him on X at @RobMcLister.

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