Renters – not mortgage holders – are showing the most debt stress, says Bank of Canada – National

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Canadian renters are showing more signs of financial stress due to rising debt levels than homeowners facing higher mortgage rates, according to a new analysis from the central bank.

The Bank of Canada published its 2024 Financial Stability Report on Thursday.

Overall, the central bank said signs of financial stress had returned to normal levels after “sharp declines” during the COVID-19 pandemic.

But these signs of stress are most concentrated among Canadians who don’t have a mortgage, especially among renters.

People without mortgages are more likely to fall behind on credit card and car loan payments, according to the Bank of Canada. According to the report, delinquencies in this category are close to pre-pandemic levels and continue to rise for non-mortgage holders.

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But those rates remain low and stable for Canadians with a mortgage. The Bank of Canada says that despite rising interest rates over the past two years, which have affected mortgage rates for homeowners, these households are coping with the higher debt burden without experiencing stress.

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The central bank noted that the rise in house prices since the start of the pandemic has led to increased equity for most homeowners. That can act as a “financial cushion” for these borrowers to reduce their payments, the report said.

However, the Bank of Canada also warned that those who renew their mortgages in the coming years are expected to see bigger jumps in their monthly payments than those who have extended their mortgages since the start of the rate hike cycle.

While the Bank of Canada report shows little sign of stress among major Canadian lenders in the face of higher interest rates, the central bank warns that a looming economic downturn could increase the risks to the financial system associated with high interest rates. can increase.

“Higher debt servicing costs reduce financial flexibility for households and businesses and make them more vulnerable in the event of an economic downturn,” the report said.

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