RBC expects mortgage delinquencies to grow by almost 30% in the coming year

For most of the previous year, Canada’s mortgage delinquency rate has remained at or near a record low level, but now it’s expected to go back to pre-pandemic levels, probably rising by almost a third.

That’s according to the recent report by RBC Economics, which points to a coming recession and an expected hike in the unemployment rate to 6.6% by the next year – it will force more Canadians to be late with their mortgage payments.

“The significant improvement in Canadians’ finances (on average) at the beginning of the pandemic wasn’t sustainable,” – said RBC’s Robert Hogue and Mishael Liu. “Those increases are reversing and will probably erode further amid a softening economy and higher interest rates.”

Although most Canadians’ financial situations have improved during the pandemic, the RBC report points to the end of government support programs, a growing cost of living, and skyrocketing interest rates as factors that are making more borrowers fall behind on their payments.

The report also points to growing delinquency rates for non-mortgage debts, e.g. credit cards, auto loans and lines of credit, which can often be a precursor to mortgage delinquencies.

According to credit rating agency Equifax Canada, non-mortgage debt delinquencies went up by 11% in the fourth quarter of 2022. Among mortgage holders, the increase in non-mortgage delinquencies rose by 6% annually.

When it comes to mortgages, the delinquency rates remained at an almost record-low level of 0.15% in February, the Canadian Bankers Association noted. The highest rate was seen in Saskatchewan (0.62%) and the lowest in Quebec (0.11%).

Although an expected increase in the unemployment rate may reverse almost half of the decrease in mortgage delinquencies during the coming year, the RBC report says that a combination of higher debt loads and higher interest rates, which have made Canadians more vulnerable to rate changes than ever, will also play an important role.

Variable-rate mortgage holders have already felt the hit from higher interest rates, but according to RBC, it will also become real for fixed-rate mortgage holders when the renewal time comes.

RBC believes that the strongest risk has been taken by borrowers who purchased their homes between late 2020 and early 2022 when interest rates were at their lowest level. The influence of higher rates on fixed-rate mortgage holders is expected to reveal itself during renewal time mostly between 2025 and 2027.

If you worry about upcoming mortgage renewal or have accumulated some other unsecured debts – we might have a solution! We want to reaffirm our commitment to the hundreds of Canadian homeowners we help each year by consolidating credit card and high interest debt into one affordable mortgage payment and freeing up extra money for everyday expenses. This is especially important today, in an era of growing unsecure debt and a sharp rise in the cost of living.