Canada

One In Five Canadian Households Only Have 2 Months of Mortgage Payments Saved

Canada’s banks scrambled to issue hundreds of thousands of mortgage deferrals, and new data shows why. Bank of Canada (BoC) staff calculations show a significant number of households would struggle to cover just a few months of mortgage payments without income. Nearly a quarter of households don’t have enough liquid to pay their mortgage for just 3 months.

About The Data

If you’re not a statistics nerd, you’re going to need a quick explanation on median values and quartile ranges. A median value is the central value in a data set, with half of values  above the median, and half below. A median divides the data in half. A quartile is a similar concept, but divides the data into four. That much you probably know, but you’ll need to know that for this next term – interquartile range.

An interquartile range of the range between the two middle quartiles. The BOC data shows the high and low values of the interquartile range of months of mortgage payments. Before the interquartile’s low value, is where a quarter of households fit. After the interquartile’s high value is where another quarter fits. The range is everyone from 25th percentile to the 75th.

1 in 5 Households Have 2 Months of Mortgage Payments Available

Most Canadian households can draw liquid assets to cover payments for less than a year. The BOC estimates the median household can cover 9 months of mortgage payments. Using the range, we can see a quarter of people have less than 3 months of mortgage payments liquid. The central bank’s analysts specified 20% of households can make 2 months of payments or less. They also add a third of households have just four months of payments available. All of these numbers assume no additional debt being carried, which would lower the value.

Canadian Months of Mortgage Payments Liquid

The estimated number of monthly mortgage payments a Canadian household can cover with liquid assets. This assumes no other debt repayments.

Source: BoC, bank filings, Better Dwelling.

A Quarter of Households In 5 Industries Have Less Than 2 Months

As you may have guessed, not all professions are affected the same way. A quarter of people in business administration, commodities and agriculture, manufacturing and utilities, sales and services, and trades and transport have less than 2 months worth of mortgage payments available. A quarter of people in all professions have fewer than 4 months of payments.

Most households could withstand mild shock, but longer term income stalling is more problematic. Now it makes more sense as to why banks were scrambling to give deferrals to households. Had they not, we would have seen defaults soar just a few months after full income stopped coming in.

Bank deferrals aren’t expected to relieve all of this pressure. Many industries expect the pandemic fallout to last more than a year. This is why the BoC, amongst other organizations, expect the arrears rate to rise 6 months after the pandemic was declared.

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11 Comments

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  • Marc 1 year ago

    Also why CERB had basically zero qualifying criteria. Point was to get as much money out as possible, and ensure the bubble doesn’t deflate too quickly.

    • Jean 1 year ago

      2 CERB cheques are a million dollar mortgage! haha

  • Greg Brookes 1 year ago

    What happened to having 6 months living expenses saved for a downturn?

    • JC 1 year ago

      Why bother when you can live on credit? And when you run out of money, the government will step in and bail you out.

    • Investor 1 year ago

      That’s a pipe dream for most of us, even despite being prudent. 6 months savings. But no question that it does help a great deal to have all the savings you can get. In reality, majority will find this a bit hard to achieve and it gets worse if haven’t cut your coat according to your size.

    • Average Man 1 year ago

      WHO HAS THAT? In Toronto or Vancouver? What world are you living in?

      • Tom Wolfe 1 year ago

        Air Canada doesn’t have that. Does GM, or Ford, General Mills (any brand that may like a handout/bailout)?

        Too often the average person is shamed for not having infinite sums of cash on hand – Banker says – “if you had more money that wouldn’t be a problem (if you were more responsible) would it?” “this is your mess” “you brought this on yourself”. Tell that to Air Canada or Rio Can or any other organization that has had little to no revenue for the last several months.

        Everyone is in the same boat. Don’t be shamed.

  • Jason Chau 1 year ago

    I think that was literally the caption BD wrote when they tweeted out this article.

    Banks were going to see 10x peak arrears in May, and instead are going to see 3x in Q3. Also why all of the banks see their losses playing out in the second half, instead of the first.

    https://betterdwelling.com/bank-of-canada-mortgages-in-arrears-expected-to-triple-but-it-could-be-worse/

  • Boomer Doomer 1 year ago

    I hope anyone with more than 1 residential property gets wiped out this year. House prices in Toronto and Vancouver should drop by atleast 60%.

    No one gives a fuk about young people, young people should not care about these people too.

  • Mark 1 year ago

    A large number of Canadians are sinking into debt, with the average household debt ratio rising to 176.9%. According to Statistics Canada, the average Canadian owes C$1.77 for every dollar they have to spend.

    The operative word here is the “Average Canadian” this means the hard working Canadian is basically BROKE and yet has a job and a paycheque every month but his/her after tax disposible income is not sufficient for them to maintain a basic quality of life and is having to resort to funding the deficit from either Credit card debt or use their already leveraged homes to borrow more money for spending.

    And this is what we call Canada being one of the so called G7 RICH countries?

    Let’s stop this false and hyped up illusion and get real and bring the leadership at all levels to account..

    • Ted 1 year ago

      Hilarious that you think that a basic standard of living includes owning a home. Get real! You all are all living beyond your means and should never have been allowed to take on that kind of debt. This isn’t about meeting your needs. You’re crying because you want tax payers to make good on all your wants. It’s sick and your are all in for a rude awakening.

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