Broker: Don't get too excited about arrears rate decline

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As Canadian arrears rates drop, is it time for the government to back off? Not necessarily, says one leading broker.

“What the government is more concerned about is the eventual long-term impact when interest rates go up,” Calum Ross, President of Calum Ross Mortgage told “I think it’s a good sign that arrears are low but I don’t think it’s a sign that they should back off; I think there is way too much household debt exposure and anyone who doesn’t think there is a potential concern about the defaults or arrears in the event that interest rates go up isn’t being realistic.”

The arrears rate declined to 0.32 per cent in June 2013 from 0.35 per cent prior year, according to CMHC – evidence that Canadians are handling their mortgage payments. However, what happens if the rates continue to rise, as many pundits expect to happen?

“What we don’t know is what the longer term ramifications are of having household debt levels this high as it is territory we have not been in before,” Ross said. “The mortgage component is probably reasonably under control when rates are locked in.

“What I am more concerned about is what happens to the model after the mortgage term comes up for renewal and we’re at six per cent interest rates.” Ross said.

For now, Ross remains cautiously optimistic and believes the lowered arrears rates are a step in the right direction.

“It’s all in all a good sign; but really its really more important for us to watch household saving rates and debt repayment as this will give us a better longer term stability picture,” Ross said. “People need to start taking debt seriously. I would be more inclined to debt repayment and savings rates than arrears.”

  • @kiltedbroker on 2013-08-30 9:26:25 AM

    Calum Ross nails it here. The End.

  • Paolo Di Petta | on 2013-08-30 10:29:18 AM

    We should also take note that blended HELOC-Mortgage products have increased in popularity over the past few years. It's no wonder that arrears and deliquencies are "down" - it's almost effortless to borrow a payment if you have the room and then use that payment to stay "current".

    This is the sort of thing that "isn't a problem" until it's too late.

    Without having access to everyone's banking data, it's impossible to know for sure, but I remember reading this week that the average mortgage size is still increasing.

    I suspect we'll be hearing a lot more about this soon.

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