A new Bank of Canada report says a household that spends a large portion of its income on mortgage payments may be more vulnerable to financial stress
The central bank considers households that spend more than 25 per cent of their income on debt servicing to be more vulnerable to rising interest rates or a loss of income. The proportion of newthat met this definition rose to 29 per cent in the fourth quarter, according to data published Friday.
However, the report also showed that the arrears rate for mortgage payments had declined over the past year even thoughwere skyrocketing. This could be a sign that many homeowners have not immediately felt the effects of the higher interest rates because they have fixed monthly mortgage payments, or that homeowners are so far coping with their rising debt service costs.
Borrowers have had to deal with the Bank of Canada pushing up its overnight lending rate by 4.25 percentage points in less than a year. Those increases immediately make it more expensive for any borrower with a variable-rate mortgage, which is tied to the central bank’s benchmark interest rate. So far, lenders and the Bank of Canada have said that these borrowers represent a tiny part of the mortgage market, suggesting that they will not have significant impact on lenders’ bottom lines or the rest of the financial system and economy.
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