“At the end of March, Canadians owed CAD $1.69 for each dollar of disposable income, nearly twice the level of 30 years ago, driven by a combination of low interest rates, minimal economic stress and increasing house prices.”That was Jason Mercer, Moody’s Investors Services assistant vice-president, speaking a year ago in what has become the annual spring ritual of assessing Canadian’s debt load and vulnerabilities within all that borrowing (consumers) and all that lending (banks and other mortgage lenders).Here we are 12 months later and the country’s debt profile continues to alarm. There’s the debt-to-income ratio of $1.71, yet another record. (Surprise!) There’s the increase in the proportion of uninsured, that is, riskier mortgages, including home equity lines of credit, to 60 per cent from 50 per cent five years ago. There’s the compounding risk of negative equity auto loans, though the specific disclosure by banks on this is so thin that Moody’s has to extrapolate from the financial firms’ disclosures on nonresidential secured borrowing. There’s the increase in debt servicing costs due to interest rate hikes. And here’s what’s looming, as the Bank of Canada has already forewarned: nearly half of outstanding mortgages are due for renewal within a year.In a report released Tuesday, Moody’s assessed what it deems these “multiple pressure points” in the system, drawing a straight line to the risks threatening the asset quality of the country’s big banks.So what concerns Jason Mercer the most?“What really worries me the most is the interest rate increase that’s coming on Canadian mortgages,” says Mercer in a quick interview. “The Bank of Canada has raised interest rates almost one per cent in the past year. (It left the benchmark rate unchanged last week.) So what concerns me is that we’ve had this really long period when consumer ...
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