Canadian Mortgage Delinquency Rates Expected to Rise Through 2025

Canada’s housing market faces ongoing challenges despite showing resilience against higher interest rates, according to a new report from the Canada Mortgage and Housing Corporation (CMHC). The report highlights increasing delinquency rates and concerns about alternative lending practices.

While overall mortgage delinquencies exceeding 90 days reached 0.19% in the second quarter of 2024, up from a record low of 0.14% in 2022, they remain below pre-pandemic levels of 0.28%. However, the alternative lending sector shows more significant strain, with mortgage investment corporations reporting delinquency rates of 1.15% in the first quarter, surpassing pre-pandemic figures.

Of particular concern, the top 25 mortgage investment corporations reported that 5% of single-family home borrowers were more than 60 days behind on payments in the second quarter, a substantial increase from 1.7% in late 2022. This sector has experienced faster growth than the broader market, with assets under management rising 4.9% compared to the overall residential mortgage market’s 3.5% growth.

Looking ahead to 2025, approximately 1.2 million mortgages are scheduled for renewal, with 85% of these originally secured when the Bank of Canada’s rate was at or below 1%. While borrowers will benefit from recent rate cuts, with the key rate now at 3.75% and further reductions expected, the increase from historical lows could still create financial strain for many households.

The CMHC report also notes that alternative lenders are taking on increased risk, with higher loan-to-value ratios and fewer first-position mortgages compared to the previous year. This trend, combined with rising delinquencies in auto loans and credit cards, suggests broader financial stress among Canadian consumers.

Despite recent improvements in interest rates, the CMHC maintains a cautious outlook, citing high household debt and higher renewal rates as ongoing concerns for the Canadian economy. The agency anticipates further increases in mortgage delinquency rates through 2025.