Rising interest rates along with strong job growth has led to more uninsured mortgages and longer tenure of car loans, putting a strain on the lending quality of Canadian banks, Moody’s Investor Service said in a report released on Tuesday.
“Almost half of outstanding mortgages will have an interest rate reset within the year, which will increase the strain on households’ debt-servicing capacity,” analyst Jason Mercer wrote in a report.
The Canadian economy added 15,400 jobs in February. On a year-over-year basis, employment rose by 282,500, or 1.5 percent, according to data from Statistics Canada.
The Bank of Canada has hiked rates three times http://reut.rs/2IjMYc2 since last July. The next rate hike is expected to come after July.
The proportion of uninsured mortgages, including lines of credit for home equity, has risen to 60 percent this year from 50 percent five years ago, the credit ratings agency said.
An average Canadian household owed a near-record C$1.67 ($1.35) for every dollar of disposable income in the first quarter last year, mainly because of mortgage debt. (http://reut.rs/2DlhUVv)
Insured mortgages in Canada have been on the decline due to the country’s decision to restrict supply and increase premiums.