According to government data from the Canada Mortgage Housing Corporation (CMHC), there were more mortgage defaults in the first quarter of 2023 than in all of 2022. Between January 1 and March 31 of this year, there were 3,081 mortgage arrears, which are considered at least 90 days past due. This is compared to 2,920 mortgage arrears during the entirety of last year. This information was provided in response to an inquiry made by NDP MP Jenny Kwan on behalf of East Vancouver. Ms. Kwan requested data on the number of insured mortgage defaults, the value of arrears, CMHC’s repayments on borrowers’ behalf, and the cost to the Crown corporation. She also asked if the frequency of defaults changed in relation to the central bank’s interest rate increases.
Out of the mortgage defaults reported, CMHC had to repay banks on only 253 mortgages in the first quarter of 2023, in contrast to the 1,210 mortgages repaid in all of 2022. The total amount of mortgage defaults in the first quarter was $36,472,813.80, just slightly below the $37,991,411.30 reported for the entire previous year. Alberta had the highest number of defaults in the first quarter, with 987, surpassing the 962 defaults in 2022. Quebec followed with 518 defaults during the first three months of 2023, compared to 459 in the previous year. Ontario had 361 arrears in the January to March period, slightly higher than the 310 from last year. Saskatchewan had 377 arrears in the first quarter, falling short of the 411 from all of last year, despite having a population of over 1 million.
The Bank of Canada (BoC) has raised its overnight lending rate by 475 basis points, or 5%, since March 2022. In addition, the Consumer Price Index increased to 4% in August. As a result, the mortgage market in Canada appears bleak for many borrowers. Renewal rates have increased to the range of 6.5% to 7%, as reported by mortgage professionals. Experts believe that these factors, along with the higher mortgage payments that buyers were already making in recent years, have contributed to the current situation.
While some borrowers are facing financial challenges, industry professionals like Daniel Johanis, owner of Pekoe Mortgages, and Ron Butler, owner of Butler Mortgage, do not anticipate major disruptions in the mortgage market. However, the BoC predicts that average payment increases in 2024 will be 14% to 25% higher compared to before they implemented their aggressive monetary policy changes. Borrowers with variable-rate mortgages have already experienced a surge of 49% in their payments. Those with fixed monthly payments will see increases of 44% by 2026 when their mortgages are up for renewal. Many of these borrowers are believed to have been making interest-only payments rather than paying down the principal.
It’s worth noting that the length of mortgage amortizations has also increased. In the summer of 2020, around 32% of mortgages had amortizations longer than 25 years. However, as of the last quarter, this figure has grown to 46%.