OSFI: Share of overleveraged borrowers in new mortgages growing

Current low-rate environment might be aggravating the issue, analysis warns

OSFI: Share of overleveraged borrowers in new mortgages growing

The proportion of highly indebted borrowers in new mortgage approvals is steadily increasing, according to data from the Office of the Superintendent of Financial Institutions.

Defined as those with loan-to-income ratios of 450% or higher, overleveraged borrowers accounted for 22.68% of originations in Q4 2020 alone – the highest quarterly share on record.

This level was 5.19% higher on an annual basis, representing a marked departure from the moderate pace during the B-20 era and essentially “rendering the impact of previous cooling measures obsolete,” Better Dwelling said in its analysis of the OSFI figures.

And while an upward trend in the ratio “is a typical part of normalization, after a policy shock,” Better Dwelling pointed to the low-rate environment as a factor that might have further inflamed the issue.

This is especially apparent among Canada’s younger consumers, which might need as many as 10 years to recover economically from the COVID-19 pandemic, a recent study by Hoyes, Michalos & Associates Licensed Insolvency Trustees predicted.

Scott Terrio, consumer insolvency manager at Hoyes, Michalos & Associates, said that while mass vaccinations will stimulate consumer activity and boost confidence among the youth, their long-term financial prospects remain murky.

“I can’t see employment rolling back out evenly, in any kind of quick way, because there’s going to be a lot of businesses not there anymore,” Terrio said. “I’ve been meeting with people for 10 months now whose jobs were just basically vaporized in March and … people in their 20s are in industries that have just been crushed … they’ve probably paid a bigger price than almost any other demographic.”