"No smoke, no cliff."
The oft-feared “deferral cliff” projected in the wake of the COVID-19 pandemic has so far failed to materialize, with active deferrals in Canadian banks representing a mere 0.8% of their residential mortgage portfolios as of December.
Data from the Canadian Bankers Association showed that this amounted to 37,582 active mortgage deferrals.
For perspective, deferrals throughout 2020 accounted for nearly 17% of banks’ residential loan books, totalling around 800,000 deferred mortgages.
“If you look at the number of mortgage deferrals that are left in the system, it’s a small fraction of what it was,” said Benjamin Tal, deputy chief economist at CIBC. “No smoke, no cliff.”
This ran counter to multiple observers’ warnings that the period coming immediately after the point when deferrals began winding down would be characterized by borrowers desperate to shore up their monthly budgets with more borrowing.
One month into 2021, that doesn’t appear to be the case.
Canadian households are not relaxing just yet, however. A recent TransUnion survey found that despite the return to regular work by millions of employees, almost half of Canadians have seen their incomes decline during the pandemic, with nearly 40% of them expressing anxiety about paying their bills.
The poll also found that 40% of Canadians living in Ontario and Quebec, along with 38% in Western Canada and 33% in Atlantic Canada, are worried about their financial status during the pandemic.
Such fears seem to be grounded in reality: StatsCan numbers showed that household debt as a percentage of disposable income rose to 170.7% before the end of 2020 – noticeably higher than the 162.8% level seen during the year’s second quarter. The household debt service ratio also grew from an average of 12.36% to 13.22% over the same time frame, recovering from the declines seen during the first few months of the COVID-19 pandemic.
