The Bank of Canada is raising concerns about the impact of higher interest rates on renters. While most households appear to be managing increased debt servicing costs, many mortgage holders will face significant payment increases when they renew over the next two and a half years.

Adapting to High Interest Rates

Bank of Canada Governor Tiff Macklem stated on Thursday that adjusting to higher interest rates "continues to present risks to financial stability."

Signs of Financial Strain

Senior Deputy Governor Carolyn Rogers highlighted that compiled data suggests stress among renter households. "After hitting historical lows during the pandemic, the share of households without a mortgage who are behind on credit card and auto loan payments has returned to—or surpassed—typical levels," she explained.

Additionally, the share of borrowers without a mortgage who carry a credit card balance of at least 80% of their credit limit has continued to climb over the past year.

Other Issues Highlighted

The report also identified other issues, including "stretched" valuations of certain financial assets, a sharp rise in the use of leverage by the non-bank financial sector, and risks related to exposure to commercial real estate, where weaker demand has pushed the national office vacancy rate to around 20%.

Impact on Mortgage Borrowers

Since the Bank of Canada began raising interest rates in March 2022, payments have increased for about half of all outstanding mortgages. Over the next two and a half years, a large share of remaining mortgages will renew, and these borrowers will face even larger payment increases.