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Toronto, Vancouver homeowners have best loan-to-value ratios, Re/Max says

Rising prices and the Bank of Mom and Dad have helped drive loan-to-value ratios lower

A new Re/Max Canada report says the Vancouver and Toronto housing markets have the lowest loan-to-value ratios, despite being the country's most expensive.
A new Re/Max Canada report says the Vancouver and Toronto housing markets have the lowest loan-to-value ratios, despite being the country's most expensive. (Pierre Longnus via Getty Images)

The Greater Vancouver and Toronto housing markets have the lowest loan-to-value ratios in the country, despite having the highest home prices, a new report from Re/Max Canada says.

The report, released Tuesday, shows loan-to-value ratios averaged 50 per cent in Vancouver and 53 per cent in Toronto as of the third quarter of last year, lower than the national average of 57 per cent.

Regina and Edmonton had the highest loan-to-value ratios at 88 per cent and 83 per cent, respectively, the report says.

A loan-to-value ratio compares the mortgage to a property's value. Lower ratios are generally considered less risky because it means a larger portion of the property is owned by the homeowner.


Re/Max Canada president Chris Alexander says the numbers in the country's most expensive regions "look good" because of three main factors: the surge in home prices over the past decade, the ability of more workers to move to relatively cheaper regions because of the increased prevalence of remote work, and the Bank of Mom and Dad, he tells Yahoo Finance Canada.

The seemingly relentless surge in home prices (until very recently) did indeed make it difficult for many Canadians to get into the market, but at the same time, higher property values helped put downward pressure on many longer-term homeowners' loan-to-value ratios.

The report found loan-to-value ratios have fallen in 67 per cent, or eight markets, tracked by Re/Max over the past decade.

The biggest improvements were seen in London, Moncton, Halifax and Hamilton.

The four markets where loan-to-value ratios have worsened over the past decade were in the two Prairie provinces.

The mortgage stress test, implemented by the Office of the Superintendent of Financial Institutions, has also helped provide a financial cushion for many homebuyers, Alexander says.

"Even though it's been a pet peeve of the real estate industry and even for a lot of homebuyers, it has helped secure responsible lending practices and give people more peace of mind when they're managing their payments," he said.

Some homeowners' finances still stretched

Despite the rather upbeat findings of the report, there's no doubt the rapid rise in interest rates has been painful for some homeowners, particularly those who opted for a variable mortgage when rates were ultra-low.

"I think it's all context, right? There are certainly a lot of people that have maybe overextended themselves or what have you, but majority speaking, the change in the rate environment are only affecting those that first got their mortgage five years ago or they went to private lenders," Alexander said.

"I think that's where the majority of the stories are coming from, and they don't make up a tremendous piece of the marketplace right now."

The report also acknowledged that the Bank of Mom and Dad could be feeling the pinch from higher rates after taking out substantial loans, some in the form of home equity lines of credit, to help their children buy a house.

However, Alexander says many parents who helped their kids are likely in a "much better position" to withstand the higher rate environment.

"They've accumulated wealth over their lifespan. They can weather debt storms better than the typical first-time homebuyer because they might have other assets or higher incomes compared to the younger cohort and so they've been able to withstand any storm," he said.

"What I've noticed is the tales of woe have certainly bubbled up to the forefront. But as you can see from the research and the data, generally speaking, the market has very healthy fundamentals when it comes to the amount of equity people have in their homes."

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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