Canadians managing mortgages despite soaring household debt load

THINK OUTSIDE THE  BOX: Canadians may be shouldering near-record household debt but homeowners have been managing it better than those than don’t own property, according to the country’s housing agency.

Mortgage delinquency rates and credit scores improved in the fourth quarter of 2016 from the third quarter and those with a home loan were less likely to default or file for bankruptcy, Canada Mortgage & Housing Corp. said in a report Tuesday.

New financing rules to tighten access to insured mortgage credit and ensure new homebuyers have a sufficient buffer amid higher interest rates were introduced in the quarter which “should help insulate households from rising mortgage-service costs,” according to the report. The Bank of Canada raised its benchmark interest rate last week as the economy picked up.

The country’s regulators and various levels of government have tried to cool the housing market in the last few years, with several mortgage, bank, and insurance rules announced in the past 10 months alone. The regulations have already contributed to a slide in sales and in some cases prices in the country’s largest city and financial capital, Toronto.

The mortgage delinquency rate remained below 1 per cent in the fourth quarter, “suggesting the mortgage market is not under additional stress,” according to the report. The arrears rate was highest among borrowers who were at least 65 years old, while those aged 45 to 64 saw a slide in arrears. Mortgage holders with a recent bankruptcy comprised less than a quarter of all bankruptcies, and the number of home-loan borrowers who’ve had a recent bankruptcy has decreased since 2014.

The agency still issued a warning about the level of household debt to disposable income — which reached a peak of 167.2 in the fourth quarter.

“High levels of household indebtedness remain a key concern of the financial system,” the agency said in the report that used data from credit ratings-agency Equifax, which has information representing about 85 per cent of all mortgages in the country. “While the credit situation of Canadians has generally improved, those with a mortgage have performed better.”

One area of concern CMHC flagged is the auto sector, with loans rising 8.4 per cent in the fourth quarter to C$68.8 billion ($53.8 billion). They only comprise about 4 per cent of total outstanding credit, but delinquency rates — or loans that are at least 90 days past due — increased to about 1.8 per cent in the quarter from 1.4 per cent in the year-ago period.

by Katia Dmitrieva            Hamilton Spectator         Jul 18, 2017

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