Debt-to-income, debt service ratios still below pre-pandemic levels

This is despite total credit market debt reaching new heights during the second quarter, Statistics Canada says

Debt-to-income, debt service ratios still below pre-pandemic levels

Despite a new record high in the rate of mortgage borrowing, household debt-to-income and debt service ratios remained below pre-pandemic levels during the second quarter, according to Statistics Canada.

Mortgage loan volume reached $57.2 billion in Q2, pushing total credit market borrowing to $63.8 billion (seasonally adjusted). Total credit market debt amounted to $2.53 trillion during the quarter, including $1.74 trillion in mortgage debt and $797.7 billion in non-mortgage loans, Statistics Canada said.

Household debt as a proportion of disposable income grew from 172.6% in Q1 to 173.1% in Q2, with a 2.5% uptick in household credit market debt outpacing the 2.2% growth in household disposable income. For perspective, the ratio right before the widespread lockdowns at the tail end of Q1 2020 was 180.2%

Read more: Revealed – how big Canada’s mortgage debt really is

However, the household debt service ratio dropped from 13.45% in Q1 to 13.32% in Q2, with the 2.1% growth in household disposable income before interest payments exceeding the 1.1% increase in total debt payments.

“Despite the continued robust mortgage borrowing, interest payments on mortgage debt edged down, while obligated payments of principal grew for the fourth quarter in a row,” Statistics Canada said.

These shifts accompanied an increase in the seasonally adjusted household savings rate from 13% to 14.2% during the second quarter. This figure has remained at double-digit levels since Q2 2020, Statistics Canada said.

“An increase in household disposable income, which rose at a faster pace than household consumption, resulted in greater net savings among households,” Statistics Canada said. “While a portion of these savings was directed towards record levels of investment in new homes and renovations, the sizable remainder placed households in a net lending position as their transactions in financial assets exceeded those in liabilities (i.e., borrowing), contributing to financial wealth overall.”