Increase in Mortgages in Arrears Highlights Financial Strains for Canadian Households

By Paul Vieira

In the third quarter, the share of mortgages in arrears at Canadian nonbank lenders saw a gradual increase compared to the previous year, according to data released by Statistics Canada on Tuesday.

While still relatively low, these numbers shed light on the challenges that households are facing in a high-rate environment. A recent Bank of Canada consumer survey revealed that one in four participants reported experiencing at least one financial vulnerability. This could manifest as an inability to cover unexpected expenses amounting to hundreds of dollars or frequently running out of money before the month’s end.

The survey stated that many households, particularly those with mortgages up for renewal in the near future, anticipate the impact of past interest rate increases on their spending. As a result, approximately two-thirds of participants intend to decrease their expenditures accordingly.

According to Statistics Canada’s data, the proportion of mortgages in arrears issued by nonbank lenders rose to 2.43% in the third quarter. This marks an increase from 2.30% in the previous quarter and 2.12% from the same period last year. The data-gathering agency defines mortgages in arrears as loans with overdue payments at the end of each quarter.

Mortgage Arrears in Canada Remain Low

According to data provided by the Canadian Bankers Association, the percentage of mortgages in arrears in Canada was at a remarkably low rate of 0.16% by the end of the third quarter on September 30th.

While these statistics only represent the share of mortgages held by the country’s biggest chartered banks, figures from Statistics Canada indicate that non-bank lenders – including credit unions, mortgage-finance companies, insurers, and private lenders – hold mortgages amounting to approximately 390 billion Canadian dollars (equivalent to US$290 billion). This signifies about a quarter of Canada’s mortgage market.

Nonbank mortgage lenders specifically cater to borrowers who do not qualify for loans from major banks. They typically offer short-term loans accompanied by higher interest rates. Canada Mortgage and Housing Corp., the federal housing agency, confirms this trend.

The concern for many is that a wave of mortgage renewals, totaling about C$700 billion, will begin this year and next at higher interest rates. Unlike the United States, Canadian lenders favor issuing mortgages with shorter terms, typically five years. Business owners surveyed by the Bank of Canada express worry that as consumers face increased mortgage costs, sales could potentially weaken over the coming year.