Canada’s renters are experiencing more financial stress compared to homeowners amid rising debt costs, according to a new analysis from the Bank of Canada. The central bank’s Financial Stability Report for 2024 indicated that signs of financial stress are returning to normal levels after sharp declines during the COVID-19 pandemic. However, renters, particularly those without a mortgage, are showing higher rates of arrears on credit card and auto loan payments, close to pre-pandemic levels and continuing to grow.
Despite rising interest rates over the past two years, homeowners with mortgages are handling the higher debt burden with little indication of stress. The report highlighted that the increase in home prices since the start of the pandemic has led to more equity for most homeowners, acting as a financial buffer for these borrowers to reduce their payments. While rates of arrears remain low and stable for mortgage holders, those renewing their mortgages in the coming years are expected to see bigger jumps in their monthly payments compared to those who renewed since the start of the rate hike cycle.
The Bank of Canada’s report emphasized that there are few signs of stress on major Canadian lenders in the face of higher interest rates. However, the central bank cautioned that a potential looming economic downturn could intensify risks to the financial system tied to high borrowing rates. The report stated that higher debt-servicing costs reduce financial flexibility for households and businesses, making them more vulnerable in case of an economic downturn.
Overall, the central bank noted that signs of financial stress were rising back to normal levels after declines during the COVID-19 pandemic, with renters facing more difficulties compared to homeowners. People without a mortgage are falling behind more on credit card and auto loans payments, while those with a mortgage are handling the higher debt burden with little indication of stress. The rise in home prices since the start of the pandemic has led to increased equity for most homeowners, acting as a financial buffer for them to reduce their payments.
The Bank of Canada’s Financial Stability Report for 2024 also highlighted that homeowners renewing their mortgages in the coming years are expected to see larger increases in their monthly payments. This is in contrast to those who renewed since the start of the rate hike cycle. While there are no significant signs of stress on major Canadian lenders due to higher interest rates, the central bank warned of potential risks to the financial system in case of a future economic downturn. Higher debt-servicing costs reduce financial flexibility for households and businesses, making them more vulnerable to economic challenges.
In conclusion, while homeowners with mortgages are managing the higher debt burden well, renters without a mortgage are facing more financial stress amid rising debt costs, according to the Bank of Canada’s analysis. The report also noted that the increase in home prices has provided homeowners with more equity, acting as a financial buffer for them. However, renewed mortgages in the coming years could lead to larger jumps in monthly payments for homeowners. The central bank cautioned that a potential economic downturn could increase risks to the financial system tied to high borrowing rates.
