Household debt, housing remain key risks for financial system: Bank of Canada

Mortgage lending rules have been tightening with application of stress tests on borrowers

Stephen Poloz (Bank of Canada)

Canada’s housing market and high consumer indebtedness levels remain the top vulnerabilities for the financial system, but both have shown signs of easing, according to the Bank of Canada.

The central bank said in a report released Thursday that worries about the amount Canadians owe have begun to pull back, but because of the sheer size of the debt, it will remain a concern for some time.

“The two main vulnerabilities we have been watching closely are showing continued signs of easing, which is encouraging,” Bank of Canada governor Stephen Poloz said in a statement.

“Combined, the impact of higher interest rates and the changes to the mortgage guidelines have reduced credit growth and improved the quality of new lending.”

The assessment came in the Bank of Canada’s latest financial system review, which assesses key vulnerabilities that could amplify or propagate economic shocks.

Mortgage lending rules have been tightening in recent years with the application of stress tests on borrowers. New rules implemented at the start of this year introduced a test for borrowers who do not require mortgage insurance and had not previously been subject to stress testing. The housing market has been noticeably cooling since the beginning of this year.

The central bank said it will monitor the extent to which borrowers who want a larger loan than they qualify for under the new federal guidelines seek out alternative lenders, such as credit unions and private lenders, who are not always subject to the federal rules.

In assessing the housing market risk, the report noted that housing price growth has slowed, led by a drop in the Greater Toronto Area. However, it said the condominium markets in Toronto and Vancouver remain strong with some evidence of speculative activity.

In addition to household debt and the housing market, the report also identified cyberattacks as a key area of concern.

“Even as defensive capacity improves across the financial system, some attacks will inevitability succeed,” the report said. “Having strong recovery plans can help to quickly restore financial system functioning and prevent a loss in confidence.”

The Bank of Canada also announced Thursday that it will no longer publish its financial system review report twice a year.

The report will become an annual review published in June and a member of the bank’s governing council will make a speech in the fall to update its assessment of the vulnerabilities and risks to the financial system.

It will also create a new financial system hub on its website that will publish research and analysis throughout the year.

The Bank of Canada’s quarterly monetary policy report will also include a more in-depth discussion of the relevant issues as warranted.

The central bank has raised its key interest rate three times since last summer, moves that have prompted the big Canadian banks to raise their prime rates which are used to set the rates charged for variable-rate mortgages and other floating-rate loans. The cost of new fixed-rate mortgages have also climbed in recent months as bond yields have risen.

Like us on Facebook and follow us on Twitter.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

What does Family Day mean to you?

Jens Lundsbye 100 Mile House “It means spending the day together with… Continue reading

Preparing for climate change focus of upcoming workshop in Williams Lake

NStQ communities, licensees, local governments and interested people invited to share ideas

From the archives of the 100 Mile Free Press

40 YEARS AGO (1980): 108 Mile Ranch was to become the first… Continue reading

Sugary drink tax could use some work

The weekly editorial for the 100 Mile Free Press

RCMP release photos of a suspect following two break-and-enters at a 100 Mile business

The 100 Mile RCMP responded to a report of two break-and-enters that… Continue reading

VIDEO: 2020 BC Winter Games wrap up in Fort St. John as torch passes to Maple Ridge

More than 1,000 athletes competed in the 2020 BC Winter Games

‘A long way to go’: UNBC hosts Moose Hide Campaign gathering on Feb. 24

The event is a part of a movement to stand up against violence inflicted on women and children

Still six cases of COVID-19 in B.C. despite reports of Air Canada passenger: ministry

Health ministry wouldn’t comment on specific flight routes

Violent ends to past Indigenous protests haunt Trudeau government

Trudeau adopted a more assertive tone Friday, insisting the barricade must come down

HIGHLIGHTS: Day one and two at the 2020 BC Winter Games

Athletes had sunny – but cold – weather to work with in Fort St. John

B.C. money laundering inquiry to begin amid hopes for answers, accountability

Eby argued that most B.C. residents already know the previous government, at best, turned a blind eye

Blockades remain in place as Wet’suwet’en hereditary chiefs returning to B.C.

Hereditary Chief Woos said they are ready to engage in nation-to-nation talks with the B.C.

Most Read