Broker, agent question foreign mortgage impact on Canadian debt

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Worries around national average debt numbers are overblown, according to real estate veterans who argue the stats could be inflated by mortgages held by foreigners.

“The chartered banks lend to non-residents,” Iain Macfadyen dominion lending centres, a Vancouver-based broker with Dominion Lending Centres, told “If a mortgage is on a Canadian bank’s books, it’s going to be considered Canadian debt.”

It’s an interesting take on the foreign investment trend and increased debt levels, which have both increasingly made headlines over the past year.

The conversation was recently sparked by a real estate agent.

“The national debt carried by Canadian consumers and the fact that Canada allows foreigners to borrow money for homes and that’s put into our debt [could have a major impact on debt levels],” Derek Austin, an agent with Century 21, recently told MBN sister publication, Canadian Real Estate Wealth. “Even 10 foreign borrowers taking out $10 million in mortgages each would throw the numbers out of whack.”

The average national household debt increased 5.1% in April, according to Statistics Canada. Mortgage debt showed the largest growth -- up 6.2%. The ratio of household debt to disposable income spiked to 165.4% in 2015, according to Statistics Canada.

And that trend is expected to continue, according to Doug Porter, chief economist for BMO Capital Markets.

“It’s tough to see anything turning this canoe around, as home prices continue to soar in Toronto and Vancouver, while there’s little prospect of a big bounce in personal incomes,” he told the Financial Post.

The impact foreign-owned mortgages have on national debt stats is unknown. Many may argue it has little effect, noting that many foreign buyers pay cash.

However, Austin isn’t so sure.

“The Royal Bank of Canada took away its limits on foreign mortgages,” he said. “Why would they do that if foreigners weren’t taking out mortgages?”

RBC announced in late 2015 that it will no longer limit mortgage size for immigrant buyers in Vancouver.

"We're seeing a lot of affluent newcomers looking to buy high-purchase price homes," Christine Shisler, RBC’s director of multicultural markets, told Reuters at the time. "Now we can actually service any mortgage amount."

It should also be noted that the Canadian government admits its process for estimating national debt is far from perfect.

“Although estimates of household debt are produced on a regular basis at the aggregate level, less is known about the individual characteristics of borrowers,” Statistics Canada says on its page on household debt. “The Survey of Financial Security (SFS), last conducted in 2005 (and prior to that, in 1999), is one of the primary sources of information on household finances.

“Correspondingly, studies examining the characteristics of Canadian borrowers are relatively rare.”
  • Evan on 2016-06-07 10:51:25 AM

    Most evidence that speaks to household debt is sourced from multiple sources. The banks, such as RBC, also know who is a Canadian and who is not. Regardless, foreign debt is not at issue because they rarely, if ever, miss a payment.

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