Credit Cards

StatCan says that Canadians are more in debt than previously thought

By: Lisa Coxon on December 17, 2018

Statistics Canada underestimated the amount of income Canadians have with which to pay their debt. In a release on Friday, Statistics Canada revised its household debt service ratio numbers, revealing that there was $1.78 in credit market debt for every dollar of household disposable income in the third quarter of the year.

Previously, that number was $1.69.

"The ratio of credit market debt to disposable income ... was impacted by a downward revision to household disposable income in 2016," the statistics agency said. "This revision was due to the incorporation of information received from the latest T4 tax filings. It resulted in an upward revision to the ratio.”

So while previously it was believed Canadians were paying down their debt, the new number shows that Canadian debt is actually not being paid down, and is instead at a record level.

Household debt service ratio is measured as the total obligated payments of principal and interest as a proportion of one’s household disposable income for mortgage and non-mortgage debt.

Canada’s household debt service ratio reached 14.5% in the third quarter, which the agency says is relatively unchanged from the second quarter. Interest payments on mortgage debt continued to outpace principal payments.

Household credit market debt as a proportion of household disposable income was 177.5% in the third quarter, up ever so slightly from 177.4% in the second quarter. All of this data was gathered on a seasonally adjusted basis, which take seasonal trends into account.

Total credit market borrowing, however, continued to slow for the third quarter in a row. Households borrowed $18.3 billion in the third quarter, compared to $20 billion in the previous quarter, according to Statistics Canada. Mortgage loans, in particular, decreased by $1.2 billion.

The revision is somewhat surprising, given that, in its Sept. 5 rate announcement, the Bank of Canada was confident that the household debt-to-income ratio was ‘“beginning to edge down.”

Credit market debt, which includes consumer credit, as well as mortgage and non-mortgage loans reached $2.19 billion in the third quarter. Broken down, that’s $1.42 billion in mortgage debt, $648.6 billion in consumer credit, and $112.7 billion in other loans.

"... the income picture is now weaker than previously thought following downward revisions. As a result, household debt burdens still remain a crucial vulnerability for the Canadian economy," Bank of Montreal economic analyst Priscilla Thiagamoorthy wrote in a client note.

“And, with interest rates on the rise, credit payments are now starting to take a chunky bite out of paychecks.”

Not only are Canadians carrying more debt; they’re not qualifying for mortgages under stricter “stress test” rules; and they continue to be threatened with higher interest rates, as the Bank of Canada has raised its key lending rate again in December, making it the fifth rate hike in the last year-and-a half.