Canada’s 2024 federal budget introduced a new five-year extension to current insured mortgage rules, in the future allowing first-time homebuyers, purchasing newly constructed homes, to amortize their mortgages over 30 years. “We believe the policy will have minimal impact on the size of the insured mortgage market,” say Morningstar DBRS researchers in a recent note, Newly Introduced 30-Year Amortizations Won’t Bolster the Demand for Mortgage Insurance in Canada.
They point out that the budget’s measure includes two conditions: that the mortgage be for a first-time homebuyer who is also buying a newly built home. “The proposed measure does not affect conventional mortgages, which already allow for amortizations of up to 35 years.”
Proportion of insured mortgages declining
The Morningstar DBRS analysis further suggests that the proportion of insured mortgages will continue to decline absent amendments to the insured mortgage rules. “While more than half of the outstanding mortgages at chartered banks were insured in 2015, that proportion has fallen to 27 per cent in 2023,” they write. As of the fourth quarter of 2023, they add that all three mortgage insurers in Canada reported delinquency rates that are below pre-pandemic levels and below historical levels.
That said, they also add these insurers reported an uptick in combined ratios from the very low levels seen in 2022. “We expect a further increase in insured losses in 2024, as borrowers cope with the strain of higher interest rates and housing price declines. Some mitigating factors include structural housing supply issues, the low unemployment rate and positive GDP growth.”
The report also notes, however, that private mortgage insurers are also showing robust profitability and capitalization levels, all of which continue to underpin their positive credit ratings.
