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.”