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.

1. OSFI’s loan-to-income (LTI) rule will have teeth

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.

2.  Real estate gets a spring boost

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 affordability from going further down the toilet.

As for interest rates — the grand puppeteer of mortgage demand — they remain a huge wildcard for 2025. That’s why yours truly isn’t brazen enough to predict a strong real estate market with confidence.

3. Debt will leave more homeowners with longer drives

While debt-service ratios have declined a touch, they’re still near a record. And non-mortgage debt loads — like those from credit cards (+9.4 per cent) and auto loans (+13.6 per cent) — have ballooned year-over-year. That’s on top of surging prices for services, food, property taxes, insurance and so many other expenses. As a result, many debt-laden consumers will need to find cheaper digs, and with work-from-home and hybrid work arrangements still a thing, middle-class Canadians will increasingly look for new homes further from big city cores.

4. Switch volumes surge

Payment shock awaits countless Canadian mortgagors when they renew this year, with most facing rates 200+ basis points above their previous deals. In an attempt to lower monthly payments, Canadians will comparison shop mortgage rates more aggressively. Many with higher debt ratios will exploit new rules that permit borrowers to switch lenders without having to pass the federal mortgage stress test. Anticipating this potential exodus, lenders will sharpen their renewal rates to keep customers in-house. While this saves some borrowers the hassle of switching, with 1.2 million mortgages up for renewal — far above normal — expect plenty of mortgage musical chairs anyway.

5. Cross-sale will drive rate competition

Deposit-taking lenders have increasingly been willing to sacrifice upfront interest revenue (i.e., offer fatter mortgage discounts) in hopes of cross-selling other financial products. I’m talking about products like savings accounts, credit cards, credit lines, creditor life insurance, GICs and other investments.

This arrangement is a win for consumers because they don’t have to buy those products, even though they’ll be bombarded with offers. The downside is that this trend will put a competitive squeeze on lenders that don’t have other financial services to sell (a.k.a. “monoline” lenders).

(On a side note, bundled pricing — whereby lenders offer a lower rate if you agree to other products — is not illegal “tied selling,” though many mistake it as such.)

In the end, while the above predictions don’t go too far out on a limb, only one thing is certain: 2025 will bring plenty of surprises.

Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister. 

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