Number of mortgages fell 3.4% in second quarter as stress test rules keep young buyers out

The number of new mortgages taken up in Canada in the second quarter of the year fell by 3.4 per cent compared to a year earlier, according to credit agency TransUnion, and younger borrowers seemed particularly discouraged from entering the housing market..

There was a decrease of 18 per cent in millennial borrowers (aged 24 to 38) and 22 per cent in Generation Z borrowers (aged 18-23), TransUnion found. The number of Generation Z mortgage holders is small, but more than 11,600 fewer millennials either applied for new mortgages or renewed a mortgage in the quarter.

People in this age group are just trying to enter the real estate market for the first time and often struggle to come up with a 20 per cent down payment.

Tough new mortgage rules are playing a role, TransUnion said.

"We think the drop is a combination of affordability and new rules — and for new rules it's a combination of less qualifying under new rules as well as a segment that perhaps qualify for less and are waiting it out for either home values to drop so they can afford more or waiting to save more of a down payment," said Matt Fabian, director of financial services research and consulting for TransUnion Canada in an email statement to CBC News. 

With housing prices slipping only slightly from historic highs, new mortgage holders must either have 20 per cent or qualify for mortgage insurance, meaning they must meet a stress test that shows they'll be able to afford payments even if rates rise.

The new rules took effect Jan. 1 and are meant to cool the overheated housing markets in some Canadian cities.

It's the second such round of mortgage rule tightening after tougher rules took effect in spring of 2017.

At the same time, mortgage rates are climbing after the Bank of Canada raised interest rates in 2017 and early 2018.

Seniors taking on mortgages

But mortgage borrowing in the April to June 2018 quarter picked up among the Silent Generation — seniors aged 73 to 93, who may be borrowing for retirement or to help younger relatives afford a home, TransUnion said.

Toronto new mortgage originations dropped 17.6 per cent from the same period last year. Calgary, Edmonton and Winnipeg also saw a decline, but there was a rise in new mortgages in Ottawa, Halifax and Montreal.

TransUnion found Canadian debt continues to rise, yet consumer debt levels have been growing at slower pace for the past two quarters.

Outside of mortgages, average debt balances per consumer increased marginally to $29,648, a 3.9 per cent increase over the same period last year

The average credit card balance also increased, by 3.5 per cent to an average of $4,200 per consumer.

But Canadians seemed to be managing their non-mortgage debt, the agency said.

Overall delinquency rates decreased, with the  percentage of cards 90 days or more past due, dropping three basis points year-over-year to 2.37 per cent.