The higher the amount borrowed, the less likely missed payments occur
A Canada Mortgage and Housing Corporation report on regional housing markets revealed that the Greater Toronto Area has the country’s most imbalanced credit market.
“The major findings were that credit market imbalances have been heaviest in the GTA over the past year,” Ted Tsiakopoulos, CMHC’s regional economist for Ontario, said of the Mortgage and Consumer Trends report.
The imbalance is, however, easing. Even the Bank of Canada, in its Financial System Review report, determined that the percentage of highly vulnerable mortgage holders has halved.
“The imbalance we’ve seen in recent years is starting to ease,” said Tsiakopoulos. “Loan-to-value ratios have been drifting lower in the GTA.”
Another major finding for Ontario is that delinquency rates remain higher for lower mortgage amounts versus higher ones.
“The reason for that is you tend to find households with lower incomes and lower credit scores holding lower mortgage balances,” continued Tsiakopoulos. “Their economics tend to be more uncertain, and these households tend to be not as income-rich, so the combination of uncertain economic conditions as well as lower incomes translates into higher delinquency rates at the lower end of the spectrum.”
The CMHC report—which compares Q1-2018 to the same period last year—deduced that credit scores in Vancouver and Victoria are praiseworthy at 776 and 780, respectively.
Credit obligations in Vancouver for mortgages and HELOCs grew the quickest in Vancouver, as average monthly mortgage commitments grew 6.5% between Q1-2017 and Q1-2018.
“The main finding is the share of delinquent mortgages has declined over the last few quarters, and in the first quarter of 2018 it was at just 0.1% in both Vancouver and Victoria, down from 0.3% about four or five years ago,” said Eric Bond, CMHC’s principal market analyst for Vancouver. “What’s behind that is a strengthening job market and rising home values, and a high level of liquidity in the housing market as well, which has given people a lot more financial flexibility.”
Delinquency rates also dropped for all types of loans but were significantly lower for mortgage holders.
“If you have a mortgage, that’s highly correlated with having a lower credit delinquency rates on all types of credit,” added Bond. “Having a mortgage is more likely to reduce the delinquency rate due to a more stringent qualification process.”
Despite CMHC’s rosy outlook on credit, Calum Ross, a leverage wealth expert and VERICO mortgage broker with Mortgage Management Group, believes a calamity could be on the horizon.
“I think there is a massive problem with consumer debt and it has been problematic for more than a decade,” he said. “People are spending like drunken sailors. I don’t know why any human being who’s borrowing a non-tax deductible mortgage would take on hundreds of thousands of dollars’ worth of debt and not think about the fact that they have to repay it with after-tax dollars. I think they have delusions of grandeur and they’re irresponsible.”