credit and debt
TIME TO GET NERVOUS ABOUT DEBT SERVICE The share of income that Canadians are devoting to debt servicing is at its highest level ever, which is cause for concern.
As we just noted, fixed-rate borrowers are facing significantly higher interest rates at renewal than they’d previously been paying. That said, it’s important to measure not just the rate of interest cost but also the borrowers’ ability to afford what they owe via the debt service ratio (DSR), which is the proportion of disposable income that is spent paying back loans. We noted in the last edition of the rennie landscape that the mortgage DSR reached an all-time high. Since then, DSR’s have climbed further with the total DSR in Q4 2023 up to 15.00%, just shy of the all-time high
(of 15.03% back in 2019). Mortgage DSR’s have likewise continued upwards, to 8.16%, a record-high. The non-mortgage DSR, on the other hand, remains relatively low historically, though has also been rising, to 6.84%. This means that Canadians are spending about as much of their incomes as they ever have before servicing debt, a concern going forward. The silver lining, at least to-date, is that mortgage arrears (those 90 days or more behind on their payments), while rising, are still quite low at just 0.18% nationally, meaning that Canadians have been keeping up on their mortgage payments.
SERVICING MORTGAGE DEBT AT A RATE WE HAVEN'T SEEN YET
16%
1.6%
15.00%
14%
1.4%
12%
1.2%
10%
1.0%
8.16%
8%
0.8%
6.84%
6%
0.6%
5.00%
4%
0.4%
arrears rate 0.18%
2%
0.2%
0%
0.0%
2020
2021
2022
2023
NON MORTGAGE DSR MORTGAGE DSR
TOTAL DSR
BOC POLICY INTEREST RATE
SOURCE: STATISTICS CANADA. TABLE 11-10-0065-01. CANADIAN BANKERS ASSOCIATION DATA: PROPORTION OF DISPOSABLE INCOME GOING TO DEBT SERVICE & MORTGAGE ARREARS RATE, CANADA
rennie.com
27
Made with FlippingBook - professional solution for displaying marketing and sales documents online