The Bank of Canada has expressed concerns over the growing financial pressures faced by renters due to the impact of rising interest rates. As reported in its annual Financial Stability Report, the bank notes that while most households are coping with increased debt servicing costs, many renters and mortgage holders are experiencing significant strain.
According to the report, there is a noticeable increase in the number of renters who are falling behind on credit card and auto loan payments. The percentage of borrowers without a mortgage who have credit card balances exceeding 80% of their limit continues to rise, indicating heightened financial stress within this group.
The bank also highlighted potential future challenges for mortgage holders, with large payment increases expected upon renewal over the next two-and-a-half years due to the rate hikes that began in March 2022. This situation is exacerbated for those who secured mortgages around the peak of housing prices in 2021 and early 2022, as they face little to no growth in home equity and are more vulnerable to financial shocks.
In response to these developments, large banks have maintained stability through increased provisions for loan losses, though smaller lenders have seen a sharper increase in credit arrears. The report underscores the critical nature of financial flexibility for households, especially as the economy faces uncertain times ahead.
Moreover, the Bank of Canada warned of the risks associated with stretched valuations in the financial sector and the rising use of leverage, particularly in the non-bank financial sector, which could amplify the effects of market corrections and increase systemic risks.