Focus on high debt-to-income ratio ignores other signs that Canadians are making responsible decisions
Given high prices in hot housing markets and the high national household debt-to-income ratio, it may be easy to assume that some Canadian haven’t been prudent in their pursuit of homeownership. But a new report from Mortgage Professionals Canada suggests that people are being responsible when it comes to their borrowing.
“Canadians have become much more indebted,” said the MPC’s Annual State of the Residential Mortgage Market in Canada report. “From the first quarter of 1990 up to the third quarter of 2019, household debt expanded from $349 billion to $2.29 trillion, an annualized growth rate of 6.6%.”
Referring to figures from Statistics Canada, the report noted that the ratio of household debt to disposable income rose sharply from 2001 to 2009. After rising gradually over roughly the next half-decade, it shot up in 2016, and remained flat over the next few years.
“However, the expansion of indebtedness has been matched by growth of assets,” it added. The most recent recorded level of household debt-to-assets across Canada was 16.8%, just slightly higher than the long-term average of 16.3% recorded since 1990. “During the past decade, the ratio has improved (fallen) slightly.”
The report acknowledged that mortgage credit accounts for nearly two thirds (65%) of household debt; it has reportedly accounted for a corresponding share of the growth. Since 1990, household mortgage credit has reportedly risen from $227 billion to $1.49 trillion as of the third quarter of 2019.
But Canadians aren’t sitting idly as their mortgage debt obligations increase. In a survey of six million mortgage holders, MPC found that in the past year, almost one third (32%) took at least one of three actions that can accelerate the repayment of their obligation:
- Increased amount of payment;
- Made a lump-sum payment; or
- Increased frequency of payments
Drilling deeper into the data, the report showed that efforts to shorten repayment times are most common (50%) among those with amortization periods originally contracted at less than 20 years. Actions to settle their mortgage debts faster were also more common (38%) among respondents with amortization periods exceeding 25 years.
“Overall mortgage growth seems to be dampened by homeowners' aggressive mortgage repayments in our low interest rate environment,” said MPC Chief Economist Will Dunning, who was the author of the report.
