Following huge gains in the Canadian property market many ‘experts’ have been worrying property investors by claiming that it is heading for a crash similar to that seen in the US back in 2007.
However, these doomsday claims that the market will crash and take Canadian banks with it are a long way from the truth, as the property and mortgage market in Canada is very different from the subprime crisis that went so wrong in America.
Firstly Canada does not have a nationwide housing bubble as has been claimed. Average property prices nationally have only in fact risen by about 5 per cent over the year to August 2016, and much of this rise has been driven by the Toronto property market which has boomed by 18 per cent in the same time.
Many other major Canadian cities such as Calgary, Ottawa and Montreal have seen sustainable growth of 1.4, 4.2 and 5.2 per cent respectively. A long way below the 10 per cent plus annual growth seen in most US cities leading up to the 2007 crash.
Mortgages in Canada also have a fail-safe of compulsory insurance for all mortgages with a loan to valuation ratio of 80 per cent or more, protecting the banks further. Insurers guarantee to reimburse the difference between funds recoverable and funds owing if the borrower defaults.
Loan to value ratios for uninsured mortgages are at around 70 per cent, and for the two main banks of Canadian Imperial and National Bank of Canada the level is below 60 per cent, ensuring plenty of room should property prices fall, which looks unlikely anyway.
Canadian banks are also far more conservative lenders with only 5 per cent of loans deemed subprime, as opposed to the 21 per cent of US loans up until 2006.
Toronto and Vancouver have seen property values soar and recently brought in measures to tax overseas property investors in an attempt to cool the markets, but overall Canada with a friendly welcome and amazing scenery remains a safe and popular destination to invest in overseas property.