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Canada’s Mortgage Lenders Have Set Aside a Record Amount for Bad Loans

Canada’s Mortgage Lenders Have Set Aside a Record Amount for Bad Loans

It’s odd to see it occur while almost every market reports record home sales. 

Canada’s real estate markets are booming, but lenders are preparing for mortgage losses. Bank of Canada (BoC) data shows the allowance for credit losses due to mortgages reached a record high in Q3 2020. The record was reached with the biggest surge in the annual rate of growth since the Great Recession.

Today’s data point is the allowance for credit losses, specifically for mortgages. You might have already guessed what this is – the amount banks set aside in the event of non-payment. When lenders expect a loan has become unrecoverable, they have to add more money to this pile. We’re going to be looking at the aggregate amount across all lenders.

The amount set aside for losses has climbed to a new record high, and is growing unusually fast. Allowances reached $3.9 billion in Q3 2020, up 22.01% from the previous quarter. This represents an increase of 54.11% when compared to the same quarter last year. It’s not just a record high for dollars, but also the highest rate of growth in over a decade.

Biggest Growth Loss Allowances Since Great Recession

Mortgage loss allowances at Canadian lenders grew at the fastest pace since the Great Recession. There’s been consistent growth since 2018, but the annual rate of growth has been tapering. That is, until the most recently reported quarters. Both Q2 and Q3 in 2020, showed a very large surge in growth. It was Q3’s annual growth that was the largest print since 2009 though.

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Canadians Are Borrowing Against Real Estate At The Fastest Pace Ever

Canadians Are Borrowing Against Real Estate At The Fastest Pace Ever

Canadian real estate prices have soared, and so did borrowing against that value. Our analysis of domestic bank filings from the Office of the Superintendent of Financial Institutions (OSFI) shows that loans secured against property has reached an all-time high. More surprising is the unprecedented rate of growth experienced this year.

Total Canadian Loans Secured Against Residential PropertyJan 2012Jul 2012Jan 2013Jul 2013Jan 2014Jul 2014Jan 2015Jul 2015Jan 2016Jul 2016Jan 2017$240$260$280$300$320Canadian Dollars (in Billions)

Month Total (in billions)
Jan 2012 252.67
Feb 2012 251.43
Mar 2012 268.75
Apr 2012 255.17
May 2012 258.07
Jun 2012 260.07
Jul 2012 258.96
Aug 2012 259.64
Sep 2012 261.66
Oct 2012 263.1
Nov 2012 262.24
Dec 2012 262.69
Jan 2013 257.82
Feb 2013 259.97
Mar 2013 259.22
Apr 2013 261.72
May 2013 262.22
Jun 2013 262.91
Jul 2013 260.75
Aug 2013 261.77
Sep 2013 260.87
Oct 2013 261.99
Nov 2013 262.54
Dec 2013 262.57
Jan 2014 265.15
Feb 2014 264.87
Mar 2014 263.4
Apr 2014 263.78
May 2014 265.75
Jun 2014 265.91
Jul 2014 267.76
Aug 2014 267.97
Sep 2014 269.29
Oct 2014 269.57
Nov 2014 269.45
Dec 2014 273.93
Jan 2015 277.08
Feb 2015 281.41
Mar 2015 282.17
Apr 2015 278.67
May 2015 280.8
Jun 2015 284.45
Jul 2015 285.66
Aug 2015 283.94
Sep 2015 285.85
Oct 2015 283.14
Nov 2015 286.56
Dec 2015 286.92
Jan 2016 285.29
Feb 2016 283.87
Mar 2016 282.05
Apr 2016 279.04
May 2016 282.34
Jun 2016 282.16
Jul 2016 283.65
Aug 2016 285.6
Sep 2016 286.17
Oct 2016 290.61
Nov 2016 291.01
Dec 2016 290.62
Jan 2017 293.46
Feb 2017 296.34
Mar 2017 297.14
Apr 2017 301.02
May 2017 303.26
Jun 2017 313.67

Total balance of loans secured against residential real estate across Canada, as determined through regulatory filings from all domestic banks. Source: OFSI, Better Dwelling.

Canadians Borrowed Against Over $313 Billion In Real Estate

Loans secured against residential real estate shattered a few records in June. Over $313.66 billion in real estate was used to secure loans, up 3.43% from the month before. The rise puts annual gains 11.16% higher than the same month last year, an increase of $31.51 billion. The monthly increase is the largest increase since March 2012. The annual gain is unprecedented according to an aggregate of domestic bank filings.



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Olduvai IV: Courage
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Olduvai II: Exodus
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