By Vipal Monga and Paul Vieira


More Canadian homeowners are falling behind on their mortgage payments, raising concerns that high interest rates are pushing Canadian borrowers to the brink.

According to a report by credit monitoring agency Equifax, the number of Canadian homeowners who missed a mortgage payment in the first quarter rose 22.7% from last year, to more than 34,000, while delinquency rates in Vancouver, British Columbia, and Toronto, Canada's most expensive housing markets, rose 25% and 29%, respectively.

"The trend is concerning," said Rebecca Oakes, an Equifax analyst. "There's no suggestion that it's going to improve in the near term."

The Equifax data coincides with government data indicating a notable rise in consumer and business insolvencies. Some economists say the rise in insolvencies likely adds pressure to the Bank of Canada to cut rates further, beyond its quarter-point reduction, to 4.75%, last week.

Senior Bank of Canada officials said this week further rate relief is likely so long as inflation continues to show signs of decelerating. As a share of the economy, Canadian household debt is among the highest in the developed world, according to data from the Organization for Economic Co-operation and Development.

Canadian lenders generally issue mortgages on shorter terms than in the U.S., and the rates for the home loans reset every three to five years. Canada's banking regulator, the Office of the Superintendent of Financial Institutions, last month flagged mortgage lending as a major risk for banks. It said that 76% of mortgages outstanding as of February will come up for renewal by the end of 2026, likely at higher rates, hitting homeowners with "payment shock."

Bank of Canada Gov. Tiff Macklem has said he is confident households have the financial capacity to deal with mortgage renewals at higher rates.

Separate data from the Canadian government, issued late last month, indicated consumer insolvencies rose nearly 20% in April from the same year-ago period. Charles St-Arnaud, an economist at Alberta Central, said elevated household debt, declining purchasing power due to inflation, and higher interest rates are all pressuring households. There is a heightened risk that insolvencies, which are already set to increase, could accelerate if labor-market conditions deteriorate, he said.

Canada's jobless rate rose in May to 6.2%, its highest level in over two years. The number of unemployed people was about 22% higher than a year ago.

Besides mortgages, Equifax said there are additional pockets of strain in consumer credit. More than 1.26 million consumers missed at least one payment on some form of borrowing, like a credit card or auto loan. That represents the highest level since 2020, and a 12.2% increase from a year ago.

In Toronto, Canada's largest urban center, there is an uptick in the number of lenders forcing borrowers in the condo market into so-called power-of-sale transactions. Under this scenario, lenders compel mortgage holders who have fallen behind on loan payments to sell their property. Daniel Foch, a Toronto-based real-estate broker, said listing volumes for this category, which hit three-decade highs last year, have jumped 50% so far in 2024, compared with the first half of 2023.

Condo units are flooding the market and developers who pre-sold units are starting to be squeezed, said Foch. "I'm pretty worried."

Canada's largest banks--including Royal Bank of Canada, Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia and Canadian Imperial Bank of Commerce--reported increases in impaired loans in their fiscal second quarters and added to their loan-loss provisions.


Write to Vipal Monga at vipal.monga@wsj.com and Paul Vieira at paul.vieira@wsj.com


(END) Dow Jones Newswires

06-13-24 1555ET