Household debt, housing remain key risks for financial system: Bank of Canada

Mortgage lending rules have been tightening with application of stress tests on borrowers

Stephen Poloz (Bank of Canada)

Stephen Poloz (Bank of Canada)

Canada’s housing market and high consumer indebtedness levels remain the top vulnerabilities for the financial system, but both have shown signs of easing, according to the Bank of Canada.

The central bank said in a report released Thursday that worries about the amount Canadians owe have begun to pull back, but because of the sheer size of the debt, it will remain a concern for some time.

“The two main vulnerabilities we have been watching closely are showing continued signs of easing, which is encouraging,” Bank of Canada governor Stephen Poloz said in a statement.

“Combined, the impact of higher interest rates and the changes to the mortgage guidelines have reduced credit growth and improved the quality of new lending.”

The assessment came in the Bank of Canada’s latest financial system review, which assesses key vulnerabilities that could amplify or propagate economic shocks.

Mortgage lending rules have been tightening in recent years with the application of stress tests on borrowers. New rules implemented at the start of this year introduced a test for borrowers who do not require mortgage insurance and had not previously been subject to stress testing. The housing market has been noticeably cooling since the beginning of this year.

The central bank said it will monitor the extent to which borrowers who want a larger loan than they qualify for under the new federal guidelines seek out alternative lenders, such as credit unions and private lenders, who are not always subject to the federal rules.

In assessing the housing market risk, the report noted that housing price growth has slowed, led by a drop in the Greater Toronto Area. However, it said the condominium markets in Toronto and Vancouver remain strong with some evidence of speculative activity.

In addition to household debt and the housing market, the report also identified cyberattacks as a key area of concern.

“Even as defensive capacity improves across the financial system, some attacks will inevitability succeed,” the report said. “Having strong recovery plans can help to quickly restore financial system functioning and prevent a loss in confidence.”

The Bank of Canada also announced Thursday that it will no longer publish its financial system review report twice a year.

The report will become an annual review published in June and a member of the bank’s governing council will make a speech in the fall to update its assessment of the vulnerabilities and risks to the financial system.

It will also create a new financial system hub on its website that will publish research and analysis throughout the year.

The Bank of Canada’s quarterly monetary policy report will also include a more in-depth discussion of the relevant issues as warranted.

The central bank has raised its key interest rate three times since last summer, moves that have prompted the big Canadian banks to raise their prime rates which are used to set the rates charged for variable-rate mortgages and other floating-rate loans. The cost of new fixed-rate mortgages have also climbed in recent months as bond yields have risen.

Like us on Facebook and follow us on Twitter.

Just Posted

(Facebook/Kelowna Cabs)
Kelowna Cabs reaches tentative agreement with dispatchers union

The tentative agreement could help end the dispute between the taxi company and the dispatchers

sdaf
Lake Country home destroyed in large blaze, 11 dogs rescued

Fire crews are responding to 10839 Hallam Drive

Festivals Kelowna president Richard Groves and executive director Renata Mills wrap themselves in the flag during the announcement of preparations for the 2018 Canada Day festival. (Alistair Waters/Capital News)
Festivals Kelowna cancels Canada Day celebrations for second year in a row

The group cited logistic issues in their announcement

Central Okanagan Public Schools is assisting with the distribution of a donation of $500 to every Grade 12 graduating student in the school district. (File photo)
Central Okanagan Grade 12 grads get $500 surprise

Anonymous donor gifts $500 to every Grade 12 student

A vehicle was fully engulfed in flames before around 11:10 p.m. Wednesday, June 16, 2021. (Kerry Hutter - contributed)
UPDATE: Kelowna man cuffed after carjacking in Vernon

Crime spree: Man robs couple at Coldstream lookout at gunpoint, sets a vehicle ablaze

Bear wanders Kelowna on June 15. (Michelle Wallace/Facebook)
Bear climbs fence, uses crosswalk in Kelowna

The bear was spotted on Baron Road Wednesday evening

Jeanette Megens
KCR: Volunteering is sharing your story

Kelowna Community Resources shares stories of its volunteers in a weekly column

This photo of the small wildfire burning above Naramata was taken at 8 p.m. on Thursday, June 17, 2021 (Monique Tamminga Western News)
BC Wildfire on scene of small wildfire above Naramata

Smoke has been showing since earlier in the day

Students in the Grade 10 entrepreneurship program at Summerland Unisus School have completed a cookbook with international recipes. (Contributed)
Summerland students create virtual international cookbook

Entrepreneurship program at Summerland Unisus School uses virtual cookbook as fundraiser

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

Hundreds of people, young and old, joined the three-day Walking Our Spirits Home procession, honouring residential school survivors, those who never made it home and all those affected by the institutions. Here people walk the third portion on June 13. (Martha Wickett - Salmon Arm Observer)
Walking Our Spirits Home from Kamloops provides path to healing

First Nations in and beyond Secwépemc territory join in to honour residential school survivors

FILE – A science class at L.A. Matheson Secondary in Surrey, B.C. on March 12, 2021. (Lauren Collins/Surrey Now Leader)
Teachers’ union wants more COVID transmission data as B.C. prepares for back-to-school

BCTF says that details will be important as province works on plan for September

201 First Street West 1980s. Prior revitalization. (Photo from Revelstoke Museum and Archives)
Man who redesigned downtown Revelstoke honoured with lifetime achievement award

Robert Inwood has worked on historical projects across the province

Provincial health officer Dr. Bonnie Henry outlines B.C.’s COVID-19 restart plan, May 25, 2021, including larger gatherings and a possible easing of mandatory masks on July 1. (B.C. government photo)
B.C. records 120 new COVID-19 cases, second vaccines accelerating

Lower Pfizer deliveries for early July, Moderna shipments up

Most Read