The widely feared “deferral cliff” has yet to manifest
Mortgages in arrears reached a 30-year low of 20% in the first quarter of 2021, with decreases seen across all lender types, according to the Canada Mortgage and Housing Corporation.
This downward slope in the number of mortgages unpaid for more than 90 days began during the first months of the pandemic, a trend bolstered by the widespread implementation of fiscal aid measures.
“Most borrowers who had financial difficulties were able to benefit from a mortgage deferral and were able to resume regular payments,” CMHC said. “In addition, overall consumer savings increased and the growth in disposable income remained positive which helped Canadians to make their monthly mortgage payments on time.”
Read more: Which demographic has the highest mortgage delinquency rate in Canada?
Despite notable variances, falling mortgage arrears was observed in all originator types, with credit unions registering the lowest arrears are at 0.13% (down from 0.15% in Q4 2020), followed by chartered banks at 0.2% (down from 0.23%) and trusts, insurance companies, and mortgage finance companies collectively at 0.25%.
Mortgage investment entities continue to hold the highest arrears rate at 0.88%. However, CMHC also said that “this was also the segment in which the arrears rate recorded the largest drop (92 basis points).”
Together, these indicators point to the fact that the oft-feared deferral cliff did not materialize in the first half of 2021 – although the market has cause to remain wary.
“Early-stage delinquency rates (payments overdue by 30 days) having continued to increase and the still high expected credit losses (ECL), could suggest the overall arrears rate may increase in the coming quarters,” CMHC said. “ECL are calculated based on the value of delinquencies lenders have on their books as well as on current and future economic conditions impacting their portfolio. In 2020, 0.1% of mortgages held by banks were reported as expected losses, significantly higher than what has been reported since 2017.”
