Household debt burden

Despite high interest rates and elevated inflation, Canadian homeowners are keeping up with their mortgage payments, says Fitch Ratings.

The rating agency reported that only 0.19% of mortgage borrowers are more than 90 days in arrears in Canada, compared with 1.52% in the U.S. and 0.74% in the U.K.

“Canadian mortgages continue to show strong performance despite ongoing inflation and high interest rates that have led to increases in mortgage payments for roughly half of homeowners,” it said.

Fitch noted that the ability of households to service their mortgages is tied to labour market conditions, with low unemployment, strong wage growth and savings all supporting borrowers.

However, as labour market slack increases, delinquencies are expected to rise too.

Fitch said it expects “unemployment to climb to 6.4% this year from 6.1% currently, before declining to 6.1% in 2025, and for delinquencies to increase to 0.25%–0.3% before falling to the 0.2%–0.25% range in 2025.”

Additionally, borrowers who took out mortgages at historically low interest rates in the years immediately following the onset of the pandemic will see payments rise significantly as they have to renew their loans at much higher interest rates, it noted.

“However, delinquencies will remain low and well within our expectations, as banks will continue to work with borrowers who are experiencing financial hardships and will aim to keep payments manageable,” Fitch said.