Nearly half of all bank lending in Canada is tied to residential mortgages – an asset class that offers financial institutions both security and stable returns.

Banks earn an average return of about 1.5 per cent on the money they lend right now. Among all loan types, residential mortgages – backed by home collateral, mortgage default insurance and a historically stable housing market – are considered among the lowest-risk lending options.

This has made the mortgage market one of the most competitive arenas in Canadian banking.

Origination vs. ownership

Mortgage market share can be viewed through two lenses: origination and ownership. Mortgage finance companies such as First National and MCAP collectively originate close to 10 per cent of residential mortgages in Canada.

However, they rarely retain these loans on their balance sheets. Instead, they securitize or sell them, often to other institutions such as the “Big Six” banks – Royal Bank of Canada, Toronto-Dominion, Scotiabank, Bank of Montreal, CIBC and National Bank.

As a result, the ownership share of the six biggest banks is considerably larger than their share of originations.

A $2.4-trillion market

As of January, outstanding residential mortgage credit totalled approximately $2.07-trillion, with more than $350-billion in additional home equity lines of credit. That brings the total residential real estate-secured lending in Canada to $2.42-trillion.

While traditional mortgages dominate, home equity lines of credit have gained popularity, especially among homeowners who’ve benefited from significant home price appreciation over the past decade. These flexible, home-secured credit lines lack fixed amortization schedules and are used to tap into home equity.

The Big Six and Desjardins

The mortgage market is highly concentrated. The Royal Bank of Canada leads all lenders with a 19.8 per cent share of real estate-secured loans. Combined, the six biggest banks control around 74 per cent of the market. Including Desjardins, the largest credit union, raises the total to 80 per cent.

The remaining 20 per cent is shared among more than 20 smaller banks, hundreds of credit unions, mortgage finance companies, insurance and trust companies and mortgage investment entities.

Many of these smaller players try to stay competitive by offering lower mortgage rates, often through brokers, or by serving niche borrowers with non-traditional income or credit profiles.

Yet their market share has declined. In January, 2015, non-big seven lenders held 21.5 per cent of the market. By 2025, that figure sat at 20 per cent.

The trend highlights the structural headwinds facing smaller institutions: limited brand recognition, restricted distribution channels, and the massive scale and customer loyalty commanded by the dominant players continue to make market share gains elusive.

Hanif Bayat, PhD, is the CEO and founder of WOWA.ca, a Canadian personal finance platform.