New research using data collected by the Canadian Association of Accredited Mortgage Professionals (CAAMP) from its corporate members strongly suggests that Canadian mortgage lenders and borrowers, including first time home buyers, are being extremely prudent with their borrowing and lending.

Last month, CAAMP surveyed members who issued more than 40,000 mortgage loans totalling $10 billion, which were funded during 2009 (the data is for home purchases only and excludes renewals or refinances of existing mortgages). The dataset represents about one-sixth of total mortgage activity for home purchases in Canada. The research is published in a report titled Revisiting the Mortgage Market – risk is small and contained.

Key findings include:

• 86 per cent of these home buyers chose fixed rate mortgages. This share fell late in the year as variable rates became more attractive (at 2.25 percent compared to 4 percent for fixed rates)
• Among borrowers who chose fixed rates, a significant number opted for longer terms – less than 5 per cent chose terms of two years or less. 20 percent took three year terms, 5 per cent four years, leaving 70 percent with a fixed rate for five years or more
• The vast majority of people who took out their first mortgage last year borrowed less than they could afford to, as their Gross Debt Service (“GDS”) ratios are far below allowed maximums, even at the higher interest rates that are used to qualifying them for their mortgage
• The high share of fixed rate mortgages and low GDS ratios for home buyers are contrary to perceptions that consumers and financial institutions are taking on more risk

Jim Murphy, AMP, President and CEO of CAAMP, said:

“This new research shows that Canadians are assessing their abilities and vulnerabilities,”

“They are being prudent and the vast majority of Canadian mortgage borrowers are not taking on undue risks. They have factored rising interest rates in to their mortgage decisions.”

Will Dunning, CAAMP Chief Economist and author of this new report said that a small minority of homebuyers are cutting it close when it comes to affordability.
He stressed that:

“this dataset is primarily focused on first-time homebuyers who are considered to be most at risk. Each year, about 2.5 to 3 per cent of Canadian households make a first-time home purchase. Our data shows that only a small percentage of them are pushing-the-envelope – about 4,000 households which amounts to a tiny fraction of the 13.25 million homeowners in Canada. For those who borrowed in prior years, risks are even lower.”

Speaking to the stress tests conducted by CAAMP, Dunning said that

“the bottom line from the simulations is that even though mortgage payments will probably rise for most borrowers, the increase in their incomes will more than offset the higher payments. All in all, the degree of risk from rising mortgage rates appears to be small and manageable.”

You can Download the Report here.

Related posts:

1. Real Estate market expected to remain strong in first half of 2010 David Paddon, THE CANADIAN PRESS Canada’s residential real estate market is expected to remain unusually strong through the first half of this year after a strong finish to 2009, according to a survey published Thursday by Royal LePage. The Royal LePage analysis is consistent with other recent reports on the state of the Canadian real [...]...
2. Canadian economic outlook brighter after rise on Supply Management’s index The U.S. Institute for Supply Management’s index rose to 55.9 in December, up from 53.6 in November and reaching its highest level in almost three years. Anything above 50 indicates growth. New orders jumped more than five points in the month to 65.5 from 60.3 in November in yet another strong indicator American’s factory floors [...]...
3. Mortgage and Interest Rates and Stats   September 2009 Welcome to the September issue of CAAMP Stats. This information is also posted on the CAAMP website, www.caamp.org Jump to a Section Bank of Canada Interest Rate Bank Prime Lending Rate US Federal Reserve Board Discount Rate Exchange Rate Government of Canada Bonds Total New Housing Starts Average MLS resale price for local markets [...]...
4. Worst in North America housing market is over John Morrissy, Financial Post  Published: Wednesday, August 26, 2009 OTTAWA — The worst is over for North America’s beleaguered housing markets, with a steady stream of data out of Canada and the U.S. indicating the recovery is at hand, economists say. “A similar pattern in both countries is unmistakenly suggesting we’ve not only bottomed in housing, [...]...

Tags: borrowing, CAAMP, lending