Two of Canada’s big banks (CIBC and TD Bank) report that consumer credit is rising at its slowest pace in nearly 20 years. Total household debt which includes consumer and mortgage credit is now rising at only 5% per year, the slowest pace since 2002 according to CIBC. Mortgage credit on its own rose by 6.3% on a year over year basis which is well below the 7.3% growth rates seen over the previous two years, and much lower the rates of growth seen during most of the decade.
What does all this mean to mortgagors? It means that the warnings from the Bank of Canada (BOC) that it may need increase variable rates sooner rather than later has no teeth. For the past several months, the BOC has been citing unusually high consumer debt levels as a serious risk to the economy and the reason it may need to increase its overnight rate. An increase to the overnight rate would cause a corresponding increase to the prime lending rate which would in turn increase the mortgage rate to variable mortgage holders.
The credit (pardon the pun) here goes to the Canadian consumer. We Canadians have a conservative culture and generally act responsibly to get our debts in line. Most Canadians are working towards paying their mortgage off and shy away from using their equity for investment or consumer spending purposes.