Canada’s biggest non-bank mortgage lender doesn’t see any signs of stress among its borrowers

According to Canada’s biggest non-bank lender, it is monitoring its mortgage borrowers closely, but hasn’t noticed any “measurable issues” in regards to payment increases.

During the company’s third-quarter earnings release, President and CEO Jason Ellis noted that the lender is “keeping a close eye” on adjustable-rate mortgage holders and those who decide to renew amid higher interest rates.

“The sharp growth in the prime rate will have a significant influence on the monthly payments of our adjustable-rate borrowers,” – he said on First National’s conference call.

“However, when I look at the mortgages that are 90 days in arrears, I can see that the share of those with an adjustable rate is in fact smaller than the share of mortgages in the overall portfolio,” –  he noted. “So, although it’s not the end yet, right now, there’s no sign of the adjustable-rate portfolio facing any difficulty adjusting.”

Ellis says the 90-plus-day arrears rate for both its prime and Alt-A portfolios is at a record low level today, and it’s even lower than in Q2.

Meanwhile, growing interest rates have already affected origination volumes.

“Although mortgage volumes remain much higher than before the pandemic, they are about 25% lower than in the third quarter of 2021,” – Ellis added.

“The sharp change in the central bank’s key lending rate is affecting mortgage rates directly. While these rates are not high from historical point of view, a more than 3% rate hike over just 6 months is quite hard to adjust to for the market,” – he admitted.

At the same time, the company reported annual gain of mortgage renewals volume by 12% in Q3. This could point to another borrowers’ squeeze since it is much more difficult today to switch to a different lender because of the much higher qualification rate.