What are mortgage arrears?
Mortgage arrears are the missed or late payments on a mortgage loan. Also known as mortgage delinquencies, this is known as “default” because it does not honour the terms of a mortgage agreement, which is typically paying a monthly fee on time. Mortgage arrears, left unpaid, can result in the lender’s power of sale or foreclosure of a property.
The Canadian Bankers Association released their latest statistics in February 2022, reporting that 0.17% of the total mortgages in Canada are delinquent— that is 8,482 out of 5,022,143 in Canada as of the end of November 2021.
Per region it is Saskatchewan with the highest percentage of arrears to total mortgages with 0.60%, followed by Alberta (including Northwest Territories and Nunavut) at 0.47%, Manitoba at 0.31%, Atlantic (including New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador) at 0.27%, Quebec at 0.13%, British Columbia at 0.12%, and Ontario being the lowest at 0.06%.
The reason for Canada’s arrears rates going historically low would be the record-breaking price hike and increasing buyer demand. This seller’s market became a way for borrowers in distress to sell their homes and pay their remaining balances.
Good thing it was the opposite of what the Bank of Canada predicted back in 2020 when they expected more Canadians to default on their payments due to the extraordinary economic impact of the Covid-19 pandemic and people were paying medical bills on top of job losses.
Data from the Canadian Bankers Association
These latest statistics on Canadian mortgages in arrears are from the Canadian Bankers Association “Mortgages in Arrears” report posted on the 4th of February 2022. It contains data from BMO, CIBC, HSBC Bank Canada, National Bank of Canada, RBC Royal Bank, Scotiabank, TD Canada Trust, Canadian Western Bank, Manulife Bank (as of April 2004) and Laurentian Bank (as of October 2010). In this report, mortgage arrears are those three or more months in delinquency. Data for Yukon is included in British Columbia. Data for Northwest Territories and Nunavut is included in Alberta.
What impacts the arrears rate?
A borrower defaults when they are unable to pay their debts. Generally, our most significant debt is our mortgages, the most challenging debt to pay off fully. So, when the pandemic hit and the world’s economy came to a stop, it was of great concern, especially to those who are living paycheck to paycheck.
The Bank of Canada did a study to understand the rate of mortgage arrears. This study saw the relationship between climate change and financial stability by observing the Fort McMurray case study. They observed that “The economic impact of COVID-19 is often compared with past recessions, but this pandemic arguably has more in common with natural disasters. The key feature shared by natural disasters and pandemics is a sudden stop of economic activity caused by a shock that is unrelated to economic factors—in this case, a public health crisis. This contrasts with the 2008 recession, which reflected an underlying fragility in the global financial system that resulted in a lengthy downturn.”
The ability of borrowers to pay their mortgages on time is affected by the policies given to support these households such as:
- Direct income support – by the Canada Emergency Response Benefit (CERB), Enhancement to Canada Child Benefit (CCB), Various programs at the federal, provincial, and territorial levels.
- Mortgage payment deferrals – Up to six months for covid-19
- Tax relief – CRA taxpayer relief provisions, Increased tax credits for covid-19
- Expedited employment insurance (EI) claims – Redirection of EI claims to new CERB system for covid-19
For the household borrower, the extent to which they will default on their mortgage during this pandemic would depend on:
- Their financial health when the pandemic started
- The effectiveness of policy actions aimed at bridging the road to recovery
- The speed at which the labour market recovers