The Bank of Canada's outsized rate increases were a major component
The ratio of Canadian household credit market debt as a proportion of household disposable income reached 182.5% in the first quarter of the year, the latest data from Statistics Canada showed.
This was slightly lower than the record high of 185% seen during the quarter prior. StatCan attributed the lower ratio to a surge in household disposable income (up by 3.3% in Q1 2022), which outstripped the pace of credit market debt growth (up by 2%).
StatCan also pointed to the Bank of Canada’s outsized rate hikes, which pushed the overnight rate to its current 1.5%, as a major factor in this development.
“The debt service ratio is impacted by changes to the prime rate for a variety of variable rate debt instruments, while a sizeable proportion of debt is in fixed rate products,” StatCan explained.
Read more: Poll: Many Canadians might sell their homes amid rate-hike environment
Mortgage borrowing continues to be a major contributor to household debt, accounting for $45.4 billion of the $52.8 billion in added debt during the first quarter.
“New variable rate mortgages continued to be preferred over fixed rate mortgages in the first quarter despite the rising interest rate environment with the proportion of outstanding variable rate mortgages increasing to 30.7% in the first quarter from 28.1% in the fourth quarter of 2021,” StatCan reported.
