London mortgage delinquencies double, more headwinds loom

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The number of Londoners behind on their mortgage payments has doubled in the the past two years as the burden of higher interest rates overwhelms some homeowners.

According to a report from Canada Mortgage and Housing Corp. (CMHC), delinquency rates – when a homeowner has missed at least three consecutive mortgage payments – in London sat at 0.14 per cent in the first quarter of the year, up from 0.07 per cent in the same quarter of 2022.

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London’s rate of increase is similar to the one seen across Ontario, which saw its delinquency rate go up to 0.15 per cent from 0.07 per cent during the same period, CMHC reported.

The increases coincide with the Bank of Canada’s decision in early 2022 to start raising its key lending rate – which impacts the interest charged on loans such as mortgages and lines of credit – in response to runaway inflation at the time.

At 0.14 per cent, London’s delinquency rate now match the level in the area before the pandemic.

But more importantly, they are below figures in the early 2010s, when the delinquency rate reached the 0.40 per cent mark, said Anthony Passarelli, CMHC’s lead economist for southern Ontario.

“It’s concerning that the mortgage (delinquency) rates are on the rise, but they were coming from a very low level because, during the pandemic, mortgage rates were at those rock-bottom numbers,” he said. “But they still aren’t anywhere near the levels we’ve seen historically in London.”

Last week, the Bank of Canada announced it was cutting its key lending rate for the third time this year, bringing it down to 4.25 per cent from a high of five per cent.

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Governor Tiff Macklem said the decision was motivated by continued progress on inflation and the need for growth to pick up again, making analysts believe more cuts will come later this year.

Those potential cuts would bring some much-needed relief to homeowners who bought their properties using variable mortgage rates and who have been hit the hardest by the central bank’s previous increases, said Victor Tran, an analyst with Ratesdot.ca.

“We’re not going to be able to get back to where we were in 2020 or 2021, with the rates at sub-two per cent levels,” he said. “But this will naturally help bring delinquency rates under control because customers that are currently in a variable mortgage will see lower payments as the rates continue to decline.”

It’s a different story for homeowners on fixed mortgage rates, who entered the market during the pandemic, when home prices were through the roof, and are only now up for renewal.

According to CMHC, about 2.2 million households, or about 45 per cent of all outstanding mortgages, would be renewing their mortgage in 2024 or 2025.

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“The people that we speaking about purchased during the pandemic years, so they got into the market at the peak and prices have now cooled off,” Passarelli said. “For them, it could be more of a payment shock if they renew at much higher rates.”

London’s unemployment rate, however, represents an even greater threat that could lead to an increase in delinquency rates in the near future, Passarelli said.

Locally, the jobless rate for the region, which also includes Strathroy, St. Thomas, and portions of Middlesex and Elgin counties, sat at 6.5 per cent in August.

But it has been trending upward during the past year, the result of job losses coupled with strong population growth.

“When you’re losing your job, you just don’t have that source of income to be able to cover your mortgages, particularly if you bought at an expensive time and your mortgage is large,” Passarelli said.

“So, an even greater risk to these mortgage delinquencies increasing, more than monetary policy, is the state of the economy.”

jjuha@postmedia.com

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