How Tariffs Impact Mortgage Lending in Canada

When we think about the housing market and mortgage lending, our minds usually jump to interest rates, home prices, and employment levels. But there’s another economic lever that can quietly influence the mortgage landscape: tariffs.

Tariffs—essentially taxes on imported goods—might seem like a global trade issue, but they can have ripple effects that reach all the way to your mortgage approval. Here’s how.

What Are Tariffs?

Tariffs are duties imposed by a country on goods imported from abroad. Governments often use them to protect domestic industries, correct trade imbalances, or retaliate against other nations' trade policies. While the intention may be national economic protection, tariffs can also increase costs for businesses and consumers alike.

How Tariffs Affect the Economy

In Canada, tariffs on construction materials like lumber, steel, or aluminum can increase the cost of building homes and infrastructure. These increased costs can trickle down through the economy in several key ways:

1. Rising Construction Costs

   
   

   When materials get more expensive, so does building. Developers may slow down new housing projects, leading to reduced housing supply.

2. Higher Home Prices

   
   

   With less supply and more expensive builds, home prices may rise—especially in already tight markets like Vancouver, Toronto, and even mid-sized cities like Edmonton and Calgary.

3. Inflation Pressures

   
   

   Tariffs can contribute to overall inflation, which puts pressure on the Bank of Canada to raise interest rates to maintain inflation targets.

   
   

The Direct Impact on Mortgage Lending

Now let’s connect the dots to mortgage lending.

1. Interest Rate Hikes

As inflation rises, the Bank of Canada often responds by raising its key lending rate. Higher rates mean:

• More expensive mortgage payments.

• Reduced borrowing power for buyers.

• Tighter mortgage qualifying conditions under the stress test.

2. Increased Home Prices

As noted above, construction costs can cause upward pressure on housing prices. Combined with rising rates, this creates a double-whammy for homebuyers:

• Higher down payments are needed.

• Loan-to-value ratios shrink.

• More buyers may be priced out of the market.

3. Risk Assessment for Lenders

Lenders also react to economic uncertainty. If tariffs are causing significant disruption, lenders might:

• Tighten credit requirements.

• Adjust risk premiums.

• Be more conservative in valuations.

  
  

What This Means for Buyers and Homeowners

If you’re in the market for a home or planning a refinance, it’s crucial to understand how broader economic issues like tariffs can affect your mortgage strategy:

• Plan for Interest Rate Volatility: Consider locking in rates if economic tensions are rising.

• Review Construction Timelines: If you’re buying new construction, delays and cost overruns might be more common.

• Work with a Mortgage Broker: Navigating these shifting conditions is easier with someone who has a pulse on the market and access to multiple lenders.

Final Thoughts

Tariffs may seem like a macroeconomic issue with little relevance to the average Canadian homeowner, but they can have significant downstream effects on housing affordability and mortgage accessibility. Staying informed and proactive—especially with expert guidance—can make all the difference in a challenging market.

If you’re wondering how current economic policies could impact your home financing options, feel free to reach out. Let’s chat about how to secure the best mortgage strategy for your unique situation.