Bank of Canada cautions renters experiencing financial difficulties

The Bank of Canada is raising concerns about the impact of higher interest rates on renters while acknowledging that, even as most households appear to be managing increased debt servicing costs, there are still many mortgage holders who will face large payment increases when they renew over the next two-and-a-half years.

The adjustment to higher interest rates “continues to present risks to financial stability,” Bank of Canada governor Tiff Macklem said Thursday as the bank released its annual report on stresses across the financial system.

Senior deputy governor Carolyn Rogers, who has previously raised concerns about renters, said the data compiled suggests there is stress in these households.

“After hitting historical lows during the pandemic the share of households without a mortgage that are behind on credit card and auto loan payments has come back up to — or surpassed — typical levels,” she said. “And over the past year, the share of borrowers without a mortgage who carry a credit card balance of at least 80 per cent of their credit limit has continued to climb.”

Other issues flagged in the report included “stretched” valuations of some financial assets, a sharp rise in the use of leverage by the non-bank financial sector and risks due to the exposure to commercial real estate, where weaker demand has pushed the national office vacancy rate up to around 20 per cent.

Since the Bank of Canada began to increase interest rates in March 2022, payments have increased for about half of all outstanding mortgages. Over the next two-and-a-half years, a big share of remaining mortgages will renew and these borrowers will face even larger payment increases.