Canadian banks are seeing a higher rate of arrears on mortgages, despite support. Recently released Canadian Banks Association (CBA) data shows the mortgage arrears rate jumped in May. The rise in arrears implies non-payment issues were brewing before the pandemic. It also means the bank’s special treatment of mortgages hasn’t totally eliminated risk.
About Canada’s Arrears Rate During The Pandemic
Quick overview of the residential arrears rate published by the CBA. The CBA’s rate includes ten member banks that represent a big chunk of mortgage lending. It’s not a comprehensive look, but it captures the majority of consumers. Smaller lenders, and private lenders, are excluded. Also, for a mortgage to be in “arrears,” it needs to see at least 3 months of non-payment. This means if a mortgage is in arrears in May, the borrower stopped paying in February.
The length of time people need to stop paying is going to be an important one when looking at the latest numbers. The latest data point is May, so a sudden rise means a hiccup in payments in February at the latest – before the pandemic. Further, pandemic supports allowed banks to avoid an arrears classification on many mortgages. As a result, the rates reported are lower than they should be, and downplay the issue. Got it? Let’s look at the numbers.
Canadian Residential Arrears Rise 12%, Even With Payment
The CBA’s national arrears rate shows a steady increase, even during the pandemic. The rate hit 0.26% in May, up 12.63% from the same month last year. This is the highest level since April 2017, and back then the rate was falling – not rising. Both the level of arrears and growth are unusually high for a normal period. It’s a little odd during a period of unprecedented government support designed to stop this rate from rising.
Canadian Mortgage Arrears Rate
The Canadian mortgage arrears rates at the ten largest CBA member banks.Source: CBA, Better Dwelling.
Overall, the rate remains relatively low, however the sharp increase combined with government supports, make it unusual. The growth rate acceleration only has two periods of similarly large moves – before the 90s downturn, and the Great Recession. The data could be a large contributor to why banks have been saying they expect rising arrears rates, while the public laughs at the thought.
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