Although the first quarter is not over, we have already seen the imposition, relaxation, and re-imposition of retaliatory cross border tariffs and two Bank of Canada interest rate reductions to shore up the economy. The pace of change has been breathtaking and the resulting economic uncertainty makes it more difficult than normal to plan.
However, planning is exactly what I believe we should all be doing right now. In that spirit, I’ve chosen to use my spring commercial financing update to highlight several realities and associated solutions that are worth considering as you plot your future strategies.
CMHC has moved decisively to a risk-off stance. Although understandable considering the heavy lifting it has done over the past three years to encourage apartment construction, CMHC’s new position means a different form of scrutiny for all submissions. Potential challenges exist on a market-by-market basis, particularly for larger financings, in the form of available leverage within CMHC’s key programs, and rental achievement requirements.
After several years of rampant inflation, rental rates are softening. This reality cannot be ignored in pro-forma projections, particularly as supply continues to grow.
Tariffs may very well lead to higher unemployment, inflate construction costs and compromise building material supply chains. It is too early to tell just how disruptive cross-border actions will be or how long they will last but the risks cannot be dismissed. That said, the potential removal of inter-provincial trade barriers may have a decidedly positive impact on costs.
Bond markets are likely to be more, not less volatile. Capital markets reflect uncertainty with significant daily price movements. With central banks in both the United States and Canada poised to continue reacting to perhaps divergent inflationary forces in our two economies, commercial mortgage rates at a retail level will be affected.
First National’s planning solutions
It would be easy to circle the wagons and put developments on hold. However, this is not possible for many clients and may not be necessary at all considering these First National solutions.
Work with us to navigate CMHC’s strict policies. An insured mortgage remains the best core financing option for multi-residential properties. By capitalizing on our expertise as the leading CMHC-Approved Lender to the industry, your submission will be tailored to address tougher underwriting requirements and well supported.
Pair a First National conventional mortgage with a CMHC-insured financing. While attractive loan-to-cost options are still available from CMHC, they may not quite bring you the leverage you want. So please speak to us about the possibility of adding a layer to your debt stack in the form of a conventional commercial mortgage that will make it possible to push leverage to an optimal level.
Hedge your interest rate risk. First National’s market-leading Early Rate Lock program is exactly suited to the kind of bond market volatility that may arise in the coming months.
Go long, not short
To date in 2025, demand for 5-year mortgages has exceeded demand for 10-year mortgages because of the steepening yield curve. This is creating a challenge in the marketplace because, by comparison, there is a greater supply of 10-year money available through the Canada Mortgage Bond program. The difference between supply and demand has had the effect of putting upward pressure on five-year spreads.
While First National has ample 5- and 10-year funds available, there are refinancing risks to consider in going short quite outside coupon rates. These include interest rate risk when it’s time to renew and political risk that current government incentives may disappear or be drastically altered in the future – despite our ongoing advocacy in favour of continued market support through CMHC and the Canada Mortgage Bond program.
All things considered, including the fact that rental apartments are long-term cash flowing assets, I strongly believe it’s time to go long.
Better Lending performance
March marked the release of First National’s annual results. I’m pleased to report that with the support of thousands of commercial clients across the country who chose to take advantage of our Better Lending approach, new mortgage originations (including renewals) reached a record $14.9 billion in 2024, pushing our mortgages under administration to $57.9 billion – also the highest on record.
Last year at this time, we became the first lender in our space to reach the $50 billion milestone, so this continued performance further distances First National from all other competitors.
New mortgage construction commitments are not included in these numbers but it’s worth noting that at approximately $2.8 billion signed in 2024, we have more outstanding construction loan commitments on our books than ever with a total construction book just under $6 billion.
Our outlook
Despite market uncertainty expressed earlier in this note, we anticipate steady new origination volumes in 2025 as more clients turn to First National for proven solutions, and as existing government incentives continue to support the creation of multi-unit housing. Our outlook also assumes that short term mortgage rates may fall even further and longer term fixed rates will remain range bound, however with intraday volatility. Despite a positive outlook for the rate environment, demand for our Early Rate Lock program remains as strong as ever, for obvious reasons.
Proud to be all-Canadian
First National was started by two Canadian entrepreneurs in 1988 and since then, we have never deviated from our focus on investing exclusively in Canada. Today, we benefit from our deep Canadian roots and boots on the ground in all key markets across the country. In 2025, you can count on our all-Canadian team of advisors as well as our asset management specialists to serve your mortgage financing needs from beginning to end. So let’s plan together and keep moving together for mutual benefit.