Why loan-to-income ratios and switching will be the talk of mortgage markets in 2025

financialpost.com:

In many ways, Canada’s 2025 mortgage outlook is as clear as an octopus playing charades. So much depends on unknown policies from new governments — on both sides of the border — that could quickly reshuffle the deck for Canadian mortgage rates and real estate. We’ll know more later this quarter, but for now, there’s enough clarity on certain points to make some not-so-daring predictions. With that, here are five forecasts for mortgages and housing in 2025.

Our bank regulator now caps the percentage of mortgages that can exceed 4.5 times the gross income of the borrower, but the limit varies by lender and is confidential. That means mortgage approvals at many federally regulated lenders are hit and miss, if your LTI ratio is above that level. This uncertainty will cause annoying inefficiencies for some borrowers in 2025, as they will have their applications unexpectedly declined, forcing them to apply with multiple lenders.

LTI limits could become a bigger showstopper if rates drop another 100 basis points or so. At that point, LTI will start being a more pronounced constraint than the government’s current mortgage stress test. In fact, it may limit overborrowing so well that OSFI pulls the plug on the stress test by December.

Real estate has several tailwinds in 2025: relaxed mortgage insurance rules, income growth, improved market sentiment, downtrending rates, regional supply bottlenecks and pent-up demand. No wonder professional crystal ball gazers are widely betting on home price gains over four per cent.

Meanwhile, most incomes are rising more than four per cent annually, governments are dissuading foreign and speculative buying and population growth is being pared back. This recipe should keep mortgage