Rising interest rates and a softening real estate market have applied the brakes to new mortgage growth, which fell to its slowest pace since 2018.

New mortgage originations as of the first quarter are down 42% from a year ago and 29% when compared to Q1 2020, Equifax Canada revealed in its latest consumer credit trends report.

“Levels have dropped even below pre-pandemic [periods] for Toronto and Vancouver [where] new mortgage originations are less than half of what we were seeing one year ago,” Swarnima Pandey, Analytics Insight Manager at Equifax, said on a client call.

“Low financing activity, lower intensity migration and reduced first-time buyers are contributing to slower mortgage growth,” she said, adding that refinancing activity has also dropped substantially.

Another trend identified by Equifax is a declining share of first-time buyers in the market, which has fallen to 20%. During the COVID-19 pandemic, the share of first-time homebuyers in the market reached a high of nearly 29%.

“Average payments have continually gone up and that is reducing the percentage share of first-time homebuyers in the market currently,” Pandey noted.

Average mortgage size down but monthly payments are up

Meanwhile, despite average new mortgage sizes easing compared to last year, monthly payments have steadily increased, the data show.

The average loan amount in Q1 for first-time buyers was $405,995, Equifax reported, up slightly from the previous quarter, but down from a high of $444,113 reached in Q1 2022.

Among total mortgage originations, the average loan size fell 3% quarter-over-quarter to $311,934. That’s down from a high of $367,576 reached in Q2 2022.

Mortgage delinquencies rising, but still below pre-pandemic levels

Despite mortgage delinquency rates remaining below pre-pandemic levels, and just off record-lows, Pandey said the market is proving “economically challenging” for many mortgage consumers, which is leading to “pockets of financial stress.”

“Consumers with a mortgage have started to miss payments on non-mortgage products,” Pandey said. “Some have even started to miss payments on their mortgages.”

Equifax says early delinquencies (30+ days) are starting to rise, particularly in regions that saw maximum growth in mortgages during the pandemic, including the Greater Toronto Area and Vancouver.

At a national level, early delinquencies are at 0.26%, up 17% since last year, but still 43% below pre-pandemic levels.

Potential areas of financial stress

Equifax identified several areas within the mortgage market where borrowers are expected to face financial stress, particularly among the 750,000 mortgages that will be renewing over the next 12 months.

Equifax estimates that 10% of mortgage consumers could see a “renewal-triggered payment shock.” As of March, Equifax says approximately 3% of the total mortgage market has so far seen their mortgage payments increase by 45%, while another 5% have experienced a payment shock of about 30%.

Another 8% of current fixed-rate mortgage holders are expected to face payment shock over the next 12 months.

Among borrowers of all credit products, Equifax said roughly 1.3 million have already missed payments over the past year.

Another three million consumers are considered in the “medium high” risk bucket, which consists of individuals that have a reduced cash flow, high revolving debt, lower income levels and that have reduced their non-mortgage debt payments.

“This cohort is at increased risk of moving towards that financial stress and needs to be monitored closely,” said Kathy Catsiliras, VP of Analytical Consulting at Equifax.