The household debt service ratio reached a new high in the third quarter
Canadians are spending more of their disposable income towards paying their debts than has ever been recorded following the doubling of mortgage interest payments since the central bank began its interest rate hikes in early 2022, as reported in an article by Bloomberg.
Statistics Canada has released national balance sheet data showing that the household debt service ratio reached 15.22% in the third quarter, which was the highest seen since data was first collected in 1990.
The report also found that household wealth has also slumped amid higher debt costs accompanied by the weaker financial and housing markets. Household net worth declined by 1.8%, totalling $16.2 trillion.
However, the quarterly increase in household debt was the slowest year-over-year increase since 1990 which may mean that Canadians are straying away from mortgage borrowing as interest rates continue to be high.
Credit market debt as part of disposable income also declined to 181.6% from the 181.9% seen in the second quarter. This means that for ever dollar of household disposable income in the third quarter, there was $1.82 in credit market debt.
The amount of total mortgage interest payments has increased by 89.6% since the Bank of Canada began raising interest rates in the first quarter of 2022. This led to a 16.8% decline in principal paid. Notably, the central bank held its benchmark rate at 5% earlier this month.
Statistics Canada’s report provides insights regarding the financial health of Canadians. The household debt service ratio tracks the total payments that Canadians are required to make as a proportion of their disposable income.
