Costs declined for the first time in more than two years
Mortgage borrowing, and Canada’s credit market activity as a whole, has accelerated in lockstep with a decline in debt-servicing costs, Statistics Canada reported last week.
The national credit-market debt was at $2.33 trillion as of the end of the first quarter, with $1.53 trillion in mortgage balances and $802.1 billion in consumer credit and non-mortgage loans.
During the same period, the household debt-service ratio (DSR) stood at 14.67%, from the 14.81% in Q4 2019.
“One silver lining in [the latest] report was the decline in debt-servicing costs, with the DSR falling for the first time in more than two years as interest rates fell across a broad range of loans,” said Ksenia Bushmeneva, an economist with TD Bank. “In addition to lower interest rates, deferrals and other modifications of mortgages and other credit products also helped lower expenses related to debt servicing.”
However, this also accompanied an increase in credit-market debt as a proportion of household income, from 175.6% to 176.9%.
Aside from the likely growth during the COVID-19 pandemic, borrowing activity is expected to intensify prior to July 1, the effectivity date of the CMHC’s new lending requirements.
The adjusted rules mandate a minimum credit score of 680, a maximum debt-service ratio of 44, and a gross debt-service ratio of 35.
“Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes,” CMHC said. “We have also suspended refinancing for multi-unit mortgage insurance except when the funds are used for repairs or reinvestment in housing.”
