Canadians quickly falling behind on their mortgages: Benchmark Canada

The number of Canadian homeowners who fell seriously behind on payments has doubled from its 2022 low, Benchmark Canada sys. Photo by Adobe Stock

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Countries don’t typically get report cards, but there are hard facts that can be collated, assessed and compared. Enter Benchmark Canada, a new project from the Macdonald-Laurier Institute that brings together more than 40 different metrics that measure this nation’s performance. This fall, the National Post is examining many of those findings.

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Canadians have a reputation for paying their mortgages on time, but more homeowners are falling behind, a potential warning sign for the country’s housing market.

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Canada has the second-lowest mortgage arrears rate in the G7, but the share of homeowners who fell seriously behind on payments has doubled from its 2022 low, according to Benchmark Canada.

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That’s the steepest rise in the G7.

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The Macdonald-Laurier Institute project finds that 0.29 per cent of Canadian mortgages were in arrears in September, up from 0.14 per cent in August 2022. Apart from Japan, which enjoys a healthy mortgage arrears rate of 0.20 per cent, the rest of the G7 fared worse — with the United States standing at 1.43 per cent and the United Kingdom at 0.89 per cent. Italy had the highest rate at 2.10 per cent.

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Ron Butler, a mortgage broker at Butler Mortgage, says condo investors are among the Canadian borrowers in greatest difficulty, facing higher financing costs, lower asking rents and more vacancies. Some owners find themselves underwater on their investment and unable to sell their units to repay the mortgage, ultimately forced to keep putting money into a losing investment.

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“You find you can’t sell it, or if you sell it, it doesn’t cover the mortgage,” he said. “You’re losing money every month. You’re going backwards.”

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Benjamin Tal, deputy chief economist at CIBC, said Canada’s increase in arrears came as borrowers renewed mortgages taken out at exceptionally low rates in 2021 when the Bank of Canada made extraordinary moves to shield the economy during the COVID-19 pandemic. Meanwhile, mortgage lenders are managing potential damage by approaching homeowners facing sharp payment increases and extending the time they have to repay their loans.

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Tal said housing data show delinquencies of 30 to 60 days had risen while those of 60 to 90 days were flat, which he attributes in part to lenders intervening with borrowers before they fall further behind.

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“What happened is that banks became much more proactive,” he said.

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Tal thinks the number of borrowers facing steep payment increases when renewing their mortgage has likely already peaked. While arrears will continue to rise, lenders have so far managed the renewal pressure better than feared, he said.

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“The fact that we are still standing is actually very reassuring,” Tal said.

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Butler said red flags would be raised if national delinquencies climbed beyond the 0.40 to 0.50 per cent mark. However, he cautions against treating a low arrears rate as evidence that homeowners are financially comfortable.