Analysts believe arrears rate may double in case deferral programs aren’t extended

According to markets observers Murtaza Haider and Stephen Moranis, Canada’s arrears rate may double and even exceed the level reported during the Great Financial Crisis, in case mortgage payment deferrals aren’t extended.

In their opinion, with the latest restarts, significant support from the government could accelerate the Canada’s financial system recovery.

“As the economic driver restarts, most full-time workers, who are often homeowners, have to face their financial obligations, including housing and shelter costs,” – Haider and Moranis noted. “Therefore, the majority of those who relied on mortgage deferral, are expected to leave the program and avoid arrears.”

They pointed to data from the central bank and Ryerson University, according to which without deferral extension, mortgage arrears may rise to 0.53% in the second quarter of the next year, marking a huge increase from 0.25% reported before the pandemic.

“Mortgage deferrals and other support measures helped flatten the arrears curve,” – Haider and Moranis noted. “In March, we’ve seen the six-month deferral deadline set, but it was done with significant uncertainty about the recovery period. Understanding today, that the labour market rebound will take more time, a prudent approach may include matching the expiry of deferrals and emergency benefits with the labour market recovery.”