Mortgage Risk Is Now Canada’s Biggest Financial Threat — What It Means for Homeowners
If you missed it this week, there was a major update from Canada’s banking regulator. Mortgage risk is now considered the #1 threat to Canada’s financial system. That’s a big shift. Last year, it wasn’t even at the top of the list, and now it’s front and center. From what I’m seeing working as a realtor in Surrey and across the Greater Vancouver market, this isn’t surprising. It’s been building for a while.The “Renewal Wave” Has Arrived
The big concern right now is mortgage renewals. Over 50% of all mortgages in Canada will renew by the end of 2027, which is significantly higher than the typical 20–30% we would see in a normal year. What’s happening now is a stacked wave of renewals hitting all at once.Who’s Actually at Risk?
Not everyone is in trouble. There are three main groups of borrowers right now:- Variable rate borrowers have already felt the impact and adjusted to higher payments.
- 3-year fixed borrowers locked in at higher rates more recently and may actually renew into lower payments.
- 5-year fixed borrowers from 2021–2022 are the most exposed, having locked in ultra-low rates and now facing much higher payments.
Are Defaults Actually Increasing?
Yes, they are. From what I’m seeing firsthand in the Surrey market, foreclosures and distressed situations are increasing. However, many of these cases appear to involve borrowers who likely should not have qualified for their mortgages in the first place, which is an important distinction.The Condo Market Is a Major Pressure Point
The regulator also highlighted weakness in markets like Toronto and Vancouver, particularly in investor-driven condo segments. This lines up with what I’m seeing locally in Surrey, where smaller investor-style units are struggling and demand has shifted toward more livable, end-user properties.It’s Not Just Listings — It’s Active Inventory
A key point many people misunderstand is that we don’t necessarily have dramatically more new listings. Instead, listings are not selling as quickly, so they accumulate over time. This creates higher active inventory, which puts pressure on pricing.The Bigger Risk: Construction and Jobs
This is where things get more serious. We’re now seeing slowing condo construction, reduced pre-sale activity, and fewer new projects launching. Since construction has been such a major driver of the Canadian economy, this has direct implications for employment. As projects finish, workers need new job sites, but fewer projects are starting, which creates a ripple effect across the economy.Pre-Sale Buyers Are in Trouble
Many buyers who purchased pre-construction at the peak are now facing lower appraisals, larger required down payments, and difficulty qualifying for mortgages. In some cases, properties purchased at $625,000 are now worth closer to $450,000. That gap must be covered by the buyer, and many simply can’t.What Happens Next?
In some cases, buyers may default on closing. In others, they are forced to come up with significantly more cash to complete the purchase. Either way, it creates stress across the system and adds to overall market pressure.Non-Bank Lenders Are Another Risk
Another concern raised is non-bank financial institutions, including private lenders, alternative mortgage providers, and hedge funds. These groups tend to take on higher-risk loans and operate with less regulation, but they are still closely tied to the broader financial system.Why the System Isn’t Breaking (Yet)
One major safeguard is the mortgage stress test. Borrowers were qualified at higher rates than they actually received—for example, borrowing at around 2% but qualifying at 5% or higher. This provides some buffer. However, not all borrowers followed the rules, and some loans may have been stretched or misrepresented. From what I’m seeing in foreclosure cases, there are definitely situations that raise concerns.What This Means for the Market
For the average homeowner, this is not a crisis, but it is a risk. We are likely to see continued price pressure, more distressed sales, and slower recovery timelines. However, this is not shaping up to be a full-scale collapse like the U.S. experienced in 2008.My Take (From Surrey)
Working in the Surrey real estate market, the biggest takeaway is that the market is under pressure, but still functioning. Foreclosures are increasing, but remain manageable. The real risk comes from multiple factors hitting at once, including mortgage renewals, job market changes, weak condo demand, and slowing construction.Key Takeaways
- Mortgage risk is now Canada’s top financial concern
- Over 50% of mortgages will renew by 2027
- Some borrowers will face significant payment increases
- Condo markets remain under pressure
- Pre-sale buyers are at the highest risk
- Construction slowdown could impact the broader economy
Final Thought
The housing market moves in cycles, and right now we are in the difficult part of that cycle. This isn’t new, and we’ve seen it before. Typically, supply tightens, demand returns, and the cycle resets. The real question isn’t whether things will improve—it’s how long it will take.Written by:
Steve Karrasch PREC
Karrasch Real Properties Team
Macdonald Realty