Canadian household credit holds firm even as mortgage delinquencies rise

Canadian households are proving more resilient than expected to higher borrowing costs, with credit utilization remaining stable and early signs of financial stress showing limited deterioration, even as mortgage delinquencies rise, according to a CIBC Capital Markets report.

The report, authored by economists Benjamin Tal and Katherine Judge, said total household debt was growing at about 4%, close to the slowest pace on record outside distortions caused by the COVID-19 pandemic. Mortgage debt outstanding rose roughly 2% year over year in August, its slowest growth in 25 years, reflecting a prolonged cooling in borrowing. Growth in lines of credit has accelerated over the past year, however, raising some concerns about emerging financial pressure.

Household insolvencies have also increased, rising 6% year over year, but CIBC described the trend as a return towards historical norms rather than an alarming deterioration. The insolvency rate is approaching its 2019 level, while consumer proposals accounted for 77% of insolvencies in the third quarter, compared with 60% in 2019. Consumer proposals generally result in smaller loan losses than outright bankruptcies.

Credit quality indicators have remained broadly encouraging. The average consumer credit score was 1.3% above its 2019 level and 0.2% higher than a year earlier. Meanwhile, the rate of subprime borrowers becoming 30 to 60 days delinquent stood at just over 6%, slightly below its year-earlier level. The movement of delinquent borrowers into more severe payment arrears has also eased from its 2024 peak.

Mortgage borrowers remain the main area of concern. The rate of mortgage payments overdue by at least 90 days has continued to climb as borrowers renew loans at higher interest rates and labour-market conditions deteriorate. CIBC estimates that payment increases exceeding 40% affected 5% to 6% of the total mortgage portfolio in 2026.

Delinquencies among borrowers without mortgages remain elevated but have been stable over the past year. Meanwhile, mortgage holders have shown more encouraging trends in credit cards and lines of credit, with serious delinquency rates in both categories stabilizing. CIBC considers these measures important early indicators because borrowers often stop paying other forms of debt before defaulting on their mortgages.

The bank expects mortgage refinancing pressures to ease significantly from February 2027, when payment increases at renewal are forecast to decline notably. Mortgage delinquencies could begin trending lower during 2027, although the timing will depend partly on labour-market conditions.

CIBC cautioned that household financial stress could continue to build over the coming quarters, but said the end of the mortgage repricing cycle, lenders’ preventive measures and the prospect of a stabilizing or declining unemployment rate should help contain losses.

Despite rising mortgage arrears, the economists concluded that Canada’s household credit position remains stronger than anticipated during the run-up to the mortgage renewal wave. They expect household credit losses over the coming year to remain manageable.