Canadians have been enjoying near record low mortgage rates for a decade. But homeowners in Asia and Europe are enjoying much lower rates.
It makes you wonder if we’ll catch up. And we might, someday.
As we speak, central banks around the world are cutting rates. There’s been pressure on the Bank of Canada to do the same.
Presently the Bank is holding its overnight rate at 1.75 percent. The benchmark rate has been frozen there since October 2018. In turn, commercial banks have been holding prime at 3.95 percent for that same amount of time, affecting variable rate mortgages.
Meanwhile, commercial banks have been offering customer’s fixed rates loans as low as 2.39 percent. This is mainly because bond yields have been falling.
Even at such ultra-low fixed rates, Canadians still pay some of the highest mortgage rates in the developed world. Only a handful of large countries, including the United States and Australia, have higher average mortgage rates.
In Europe, mortgage holders have much lower interest costs. In Denmark, for example, one commercial bank recently began offering negative rates where borrowers are effectively paid to take out a mortgage.
A recent survey by HuffPost Canada, looked at how Canadian mortgage rates compare to other developed nations around the world. It found a number of countries in Europe and Asia are offering mortgages to customers at rates of less than one percent. This includes, France (0.96 per cent) Switzerland (0.86 per cent), Portugal (0.7 per cent), Germany (0.5 per cent) Japan (0.37), Belgium (0.1) and of course Denmark the lowest at -0.5 per cent.
Canada’s rates pale in comparison. But this has more to do with our stable economic conditions which play into the Bank of Canada’s unwillingness to cut rates further. Our economy keeps chugging along with unemployment near a four-decade low. And despite our higher relative rates, Canadians continue to take on more debt.
In a report by Statistics Canada called “Indebtedness and Wealth among Canadian Households.” It found that much of the increase in household debt in the post-recession period reflects the accumulation of mortgage liabilities on the household balance sheet.
They note that in 2016, “mortgages accounted for 80.7 percent of the total debt carried by Canadian families, up from 77.4 percent in 1999. During this period, the share of debt accounted for by lines of credit also rose, while debt from student and vehicle loans and other sources declined.”
The report adds that higher mortgage liabilities contributed to higher debt-to-income levels across the country. From 1999 to 2016, median levels of mortgage debt for Canada as a whole, measured in 2016 dollars, rose from $95,400 to $190,000, as the ratio of debt to after-tax family income increased from 94 percent to 165 percent. The increase was sharper in big urban centres. During the same period, debt-to-income levels doubled to 210 percent in Toronto and rose from 148 percent to 230 percent in Vancouver.
Latest data shows that mortgage debt shows no sign of slowing down. Scotiabank reported in June 2019, Canada household mortgage credit grew by 5.2 percent month-over-month. That is the fastest pace in two years. Year-over-year Canadian mortgage debt grew by 3.7 percent now up to $1.57 trillion total.
Mortgage rates may be higher in Canada then most parts of the developed world, but with our lowest unemployment rate in decades, strong consumer confidence and good growth, consumer are still willing to borrow more. The latest data shows Canada economy grew by 3.7 percent in the second quarter of 2019. That beat expectations and is much higher than most other countries. But borrowers should be mindful of how much debt they are taking on and how sustainable that growth is over the long term.
Bottom line: In many countries, rates are much lower, but their economic conditions generally aren’t as good as they are in Canada. For that reason, our rates remain elevated, but they are still at rock bottom compared to what Canadians paid even two decades ago.