Canadian Mortgage Growth Slows Amid Government Housing Moves

Canadian mortgage growth is slowing as the country’s policy makers step up efforts to cool overheated housing markets in Vancouver and Toronto.

With four of Canada’s biggest banks reporting second-quarter results, the trend shows decelerating growth in home loan portfolios and, in some cases, shrinkage. It’s a welcome sign for officials struggling to curb house prices in two of the nation’s largest cities. The easing follows federal government moves in October to tighten mortgage insurance rules and other measures while opening the door to shift risks of defaulting mortgages to banks.

“It’s not that we’re pulling back, it’s just that the market is slowing a little bit and part of that is the supply in the market was lower," Royal Bank of Canada Chief Financial Officer Rod Bolger said Thursday in a telephone interview.

Royal Bank, the biggest domestic mortgage lender, said average home loan balances rose 5.5 percent to C$224.1 billion ($166.5 billion) from a year earlier, its slowest annual growth since the first quarter of 2015.

Toronto-Dominion Bank and Bank of Montreal saw their mortgage portfolios shrink from the previous quarter for the first time in years. TD’s home loan balances slipped 0.4 percent to C$187.5 billion, the first sequential contraction in two years. Home loan balances were up 1.2 percent from the same period last year -- the slowest annual growth in at least four years.

Toronto-Dominion is seeing the effects of “de-emphasizing" some parts of its mortgage business, including reducing purchases of private-label originations, CFO Riaz Ahmed said in an interview. He also said the country’s residential property market appears to be moderating.

“In the last two weeks of April or so, we did begin to see some cooling in the housing market as sales activity slowed and more supply came to the market,” Ahmed said. “We are happy with that because that’s generally good for Canada and our customers."

Bank of Montreal’s domestic mortgage book also contracted for the first time in two years, with average balances in the quarter slipping about 0.1 percent to C$98.3 billion from three months earlier, according to financial statements by the Toronto-based lender. Bank of Montreal, which has the smallest share of the domestic market among Canada’s five largest lenders, said home loan balances rose 5.2 percent from a year earlier, the slowest annual growth in three quarters.

“There is a little bit of seasonality in the second quarter," CFO Thomas Flynn said Wednesday in a phone interview. “It’s not as active of a mortgage season for us, and it’s also a slightly shorter quarter."

Toronto Prices

Toronto home prices slowed in the first two weeks of May, according to the city’s real estate board, after climbing 25 percent in April from a year earlier and 33 percent in March. Last month, Ontario’s government announced plans for a 15 percent tax on foreign buyers, following similar measures enacted in British Columbia in August.

“We do expect growth in mortgages over the next few years to be somewhat lower than it has been over the last five years," Flynn said. “That’s just reflecting the expectation that the market will continue to be stable but will cool somewhat.”

Canadian Imperial Bank of Commerce was an outlier among the lenders, with mortgage balances jumping 12 percent from a year earlier thanks in part to the firm’s efforts to ramp up a mobile mortgage sales force to about 1,200 advisers.

“It’s a strong part of our business, and something that we focus on," CFO Kevin Glass said in an interview. “We’re not compromising anything in terms of our growth. We like the business and it provides a very good return on capital."