Mortgage deferrals fall sharply since worst days of COVID-19, many resume payments

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The mortgage deferral cliff has flattened out.

Canadian banks had 37,582 active mortgage deferrals on their books as of the end of December, or 0.8 per cent of their residential mortgages, according to the Canadian Bankers Association.

Over the course of last year, banks provided about 800,000 mortgage deferrals, or nearly 17 per cent of their residential loan book, as homeowners faced financial stress when governments shut down large swaths of the economy to stop the spread of the COVID-19 pandemic.

But the vast majority of those deferrals have now expired with most mortgage holders resuming loan repayments, according to the bank association.

“If you look at the number of mortgage deferrals that are left in the system, it’s a small fraction of what it was. No smoke, no cliff,” said Benjamin Tal, deputy chief economist with Canadian Imperial Bank of Commerce.

Early in the health crisis, Canada Mortgage and Housing Corp. had warned of a looming mortgage deferral cliff. The agency, as well as a handful of real estate professionals, said there was risk that homeowners would be unable to resume mortgage payments when their deferrals expired, leading to a rise in mortgage delinquency rates, people losing their homes and a flood of houses hitting the market.

But that has not happened, not even for mortgage holders who required insurance, which are borrowers who had a down payment of less than 20 per cent of the purchase property price.

Among mortgages insured by CMHC, the percentage of deferrals was 1 per cent in November compared with 9 per cent in July.

CMHC found there was a correlation between unemployment and mortgage deferrals, according to a report it released on Tuesday.

The agency said homeowners working in construction, retail and services had been more likely to postpone mortgage payments during the pandemic. Those sectors shouldered hundreds of thousands of job losses in the first few months after the pandemic started.

Alberta, which was hit by both the pandemic and a drop in oil prices, had the highest rate of insured mortgage deferrals. Across the province it was 17 per cent in July, according to CMHC, with Edmonton at 18 per cent and Calgary at 15 per cent. As of the end of November, it was 2 per cent in the province and the two major cities.

A crippling downturn in the housing market did not occur last year as some feared. The economy reopened briefly during the summer, while government programs helped keep some residents employed and provided some funding for those who had lost work.

Mr. Tal said overall renters faced higher unemployment than homeowners, which meant those that received deferrals were able to eventually resume payments. “It goes back to the asymmetrical pain in the labour market. A smaller proportion of homeowners lost their jobs relative to renters,” he said.

Throughout the first six months of the pandemic, the mortgage arrears rate has been low. The arrears rate does not include mortgage deferrals. It was 0.46 per cent in the third quarter for insured mortgages, according to CMHC. Across bank mortgages, the arrears rate was 0.25 per cent at the end of September.

Homeowners have been seeking more room and driving sales across the country. There was a record number of home resales in Canada last year and the average selling price hit a record high. Buying has now entered a new level of frenzy in places such as Toronto, with realtors in some cases reporting more than 30 offers on a single property.

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