credit and debt
KEEPING UP WITH OUR DEBTS While debt-service ratios have increased in response to high interest rates, they remain lower than their pre-pandemic levels.
A good measure of how well households can afford their debt loads is the debt service ratio (DSR), which calculates the proportion of disposable income that is spent paying back loans. Interest rates are an important factor impacting DSR’s, when rates rise and borrowing becomes more expensive so does the cost of servicing debt. So it should come as no surprise that DSR’s have been increasing of late, with the total measure up to 14.33%. And while this is the highest it's been for more than two years, it’s still lower than it was in Q1 2020 at the
beginning of the pandemic, and lower than every single quarter in the two years prior. The mortgage DSR continues to climb, and it’s now at its highest point ever at 7.66% (the data go back to 1990), but this is offset by a lower non-mortgage DSR which has increased marginally but is still relatively low, from a historical perspective, at 6.67%. When you pair the DSR data with the mortgage arrears rate, which is a lagging indicator but still a useful one, these traditional debt measures indicate that Canadians, as a whole, are managing their debt loads relatively well.
DEBT SERVICE AND ARREARS ARE, IN PART, ALLAYING SOME FEARS
16%
0.8%
14.33%
14%
12%
0.6%
10%
8%
0.4%
7.66%
6%
4.25% 6.67%
4%
0.2%
arrears rate 0.15%
2%
0%
0.0%
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
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