credit and debt
ENDS MEET DESPITE BULKIER BALANCE SHEETS Despite rising debt, households are better positioned to afford it than they have been in close to two decades.
The best, but not the only, measure of how well households can afford what they owe is the debt service ratio (DSR), or the proportion of disposable income that is spent on paying back loans. While Canadian mortgage and non-mortgage DSRs have generally risen over the two decades, they are clearly and directly impacted by changes in interest rates: when borrowing becomes cheaper, a lesser share of income is spent servicing that debt; when borrowing becomes more expensive, the opposite is true.
The current DSR of 13.8% is up from the pandemic low of 12.2%, but it’s below the pre-pandemic high of 15.0%, which also matched the two-decade high achieved back in 2007. The mortgage DSR, at 7.2%, is near its 20-year high due to rising debt loads, while the non-mortgage DSR recently dipped below the mortgage DSR for the first time, currently sitting at 6.7%. These metrics will rise this year, squeezing Canadians’ pocketbooks at the margin. But with interest rate increases likely to be measured and modest, we can handle it.
IT’S NOT WHAT YOU OWE, BUT RATHER, CAN YOU PAY AS YOU GO?
16%
15.01%
15.02%
14%
13.84%
12%
12.25%
11.71%
10%
8.74%
7.86%
8%
6.69% 7.15%
6%
6.47% 5.24%
6.27%
6.01%
4.50%
4%
1.75%
2%
2.00%
0.25%
0%
NON MORTGAGE DEBT
MORTGAGE DEBT
TOTAL DEBT
BOC TARGET RATE
SOURCE: STATISTICS CANADA. TABLE 11-10-0065-01 DATA: PROPORTION OF DISPOSABLE INCOME GOING TO DEBT SERVICE, CANADA
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