The federal government’s mortgage stress test was expanded in January in a bid to protect homeowners from becoming overextended, particularly in Vancouver, which has the highest average home prices in Canada.
Yet the latest data on mortgage defaults shows that Vancouver homeowners have the lowest delinquency rate in the country at 0.08 per cent, one of the tiniest ever recorded.
When the stress test was revised this year, the Office of the Superintendent of Financial Institutions (OFSI) said it was a prudent move to keep mortgage holders from running into financial trouble. The test requires all those applying for a new mortgage to qualify at a lending rate 2 per cent higher than what is generally available in the market.
“We clearly see the potential risks caused by high household indebtedness across Canada and by high real estate prices in some markets,” OFSI superintendent Jeremy Rudin said at the time. “We are not waiting to see those risks crystallize in rising arrears and defaults.”
As of the first quarter of this year, though, the delinquency rate for existing mortgages fell to 0.08 per cent, down from a peak of 0.6 per cent in the third quarter of 2014, despite the average monthly mortgage payment rising to $1,800, up 6.3 per cent from the first quarter of 2017, according to Canada Mortgage and Housing Corp. (CMHC). A mortgage is considered delinquent if three consecutive mortgage payments are in arrears.
CMHC found the low default rate in Vancouver was the same regardless of the mortgage amount.
As a comparison, the default rate on Vancouver credit card holders is about 1.5 per cent and for auto loans is above 2.2 per cent, CMHC noted in its Mortgage and Consumer Credit Trends Report Q1 2018.
As well, the credit risk score among Vancouver mortgage holders increased from an average of 776 in 2017 to 780 in the first quarter of 2018, according to credit reporting agency Equifax Canada. Equifax ranks a credit score of 700 as “good”, an 800 score as “excellent.”
“The main finding is the share of delinquent mortgages has declined over the last few quarters, ” said Eric Bond, CMHC’s principal market analyst for Vancouver. “What’s behind that is a strengthening job market and rising home values, and a high level of liquidity in the housing market as well, which has given people a lot more financial flexibility.”