Following sharp declines during the COVID‑19 pandemic, many indicators of financial stress have now returned to more normal levels. Signs of stress are concentrated primarily among households without a mortgage and survey data suggest that, of these households, renters are most affected. In contrast, indicators of stress among mortgage holders are largely unchanged, remaining at levels lower than their historical averages. Factors such as income growth, accumulated savings and reduced discretionary spending are supporting households’ ability to deal with higher debt payments.

Over the coming years, more mortgage holders will be renewing at higher interest rates. Based on market expectations for interest rates, payment increases will generally be larger for these mortgage holders than for borrowers who renewed over the past two years. Higher debt-servicing costs reduce financial flexibility for households and businesses and make them more vulnerable in the event of an economic downturn.

Signs of financial stress have risen primarily among households without a mortgage

The combination of higher inflation and higher interest rates continues to put pressure on household finances. Many indicators of financial stress, which had declined during the pandemic, are now close to pre-pandemic levels. Signs of increased financial stress appear mainly concentrated among renters.

The rates of arrears on credit cards and auto loans for households without a mortgage—which includes renters and outright homeowners—are back to pre-pandemic levels and continue to grow. In contrast, arrears on these products for households with a mortgage have remained low and stable.

https://www.bankofcanada.ca/2024/05/financial-stability-report-2024/