As I had mentioned a few weeks ago, credit is only going to continue tightening from here. Not only have mortgage rates gone up, nearly 50bps, but we are now getting confirmation that banks are tightening the screws on new mortgage issuance. I highly recommend giving Ron Butler, of Butler Mortgages, a follow on Twitter- he’s been all over this.

As of April 09, all new mortgage applications will follow strict qualifications. Banks will be scrutinizing the sustainability of your employment, particularly for certain sectors that are more vulnerable to layoffs.

There will be more stringent criteria on rental properties, and as published now on RateSpy, some lenders are pulling back on HELOCs (Home Equity Lines of Credit). The days of using a HELOC to fund the downpayment on an investment property are coming to an end. This is a more common practice in the pre-sale condo space, so I suspect it could hit demand there.

Let’s be honest, credit has been very loose for a long time in Canada, as evidenced by our extreme levels of household indebtedness, so you can’t blame the banks for pulling the rug at a time when one million Canadians just lost their job in a single month.

Canada job loss March 2020
Canadian economy shed 1M jobs in March. Source: Bloomberg

The jobless rate surged to 7.8%, up from 5.6% in February, and will only continue growing from there. This is a serious risk for mortgage delinquencies, which will be delayed, but not eradicated, with mortgage deferrals.

RBC’s Dave McKay said his bank has already fulfilled 250,000 requests to do with credit products, including mortgage deferrals. He added “it is challenging for the bank to adjudicate loans and make credit decisions in an environment where many of RBC’s clients have no revenue.”



  1. Do you have any comment on the shadow banking sector and how they are holding up? I would imagine liquidity for them is even tighter than the banks and with this much fear in the markets we are going to see possible redemptions from their investors. After all, returns are still only 8-12% on average which doesn’t seem like a lot considering their risk.

  2. True, but banks are not completely innocent here. Banks and CREA were lobbying the federal government to reduce the stress test. Banks, Real Estate and insurance I would question. Politician failed to do the right thing. CREA engineered this FOMO environment. The herd were foolish. We should have deleveraged like the american’s did after GFC. Debt levels continued to rise and now the we have the perfect storm. Don’t like to see friends and families being in pain now but it will all pass. Let the deleveraging start. Or else, the herd will not learn and continue where they left off once this is all over.


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