Mortgage Market Trends and Their Influence on Real Estate

Mortgage market trends are significantly influencing real estate dynamics by shaping borrower behaviour, affordability, and market activity. A key trend is the rising popularity of variable-rate mortgages, which accounted for about 41-42% of new loans in early 2025 due to lower premium costs and greater flexibility. Borrowers are also favouring short-term fixed-rate mortgages (3 to 5 years), reflecting expectations of future interest rate declines and a desire for flexibility. However, this shift increases vulnerability to interest rate fluctuations, as variable and short-term fixed-rate borrowers face payment changes sooner if rates rise.

The mortgage market is also experiencing a large wave of renewals, with over 2 million mortgages set to renew between 2025 and 2026. Many of these were originally taken out at historically low rates (~1%), so renewals are expected to lead to higher monthly payments, even if interest rates decline slightly. This creates financial stress risks, especially amid economic uncertainty and potential job losses, which are the main cause of mortgage delinquencies.

Economic factors such as recent interest rate cuts by the central bank have started to ease some pressure, encouraging a modest recovery in home sales and prices in the latter half of 2025. However, affordability challenges, a fragile labour market, and reduced immigration targets are expected to temper the pace of housing market recovery. Home resales are forecasted to rebound by about 7.9% in 2026 but will remain below pre-pandemic averages. Prices are expected to decline slightly in 2026 after modest gains in 2025, particularly in markets with high inventory and affordability issues.

Mortgage debt remains a dominant component of household indebtedness, representing about 70% of total loans, and changes in mortgage rates have a significant impact on borrower finances due to large loan balances. The mortgage market's health is crucial for overall financial stability, with alternative lenders growing their share but also facing increased delinquency risks.

In summary, mortgage market trends—especially the shift toward variable and short-term fixed-rate products, the large volume of mortgage renewals, and economic uncertainties—are influencing real estate by affecting affordability, borrower risk, and housing demand patterns. These factors contribute to a cautious but gradually recovering housing market outlook.