Bank of Canada says households can cope with higher rates

The Bank of Canada says households can weather higher borrowing costs, but flagged rising asset valuations and debt serviceability among renters as risks to the financial outlook.

Canadians are “proactively” adjusting to higher interest rates, and the financial system “remains resilient,” the central bank said in its annual review of the system published Thursday. And while payments have risen for about half of the country’s mortgages, households have higher wages and savings, officials said, and they’re adjusting their spending patterns.

“Overall, the evidence suggest that households have the flexibility to continue servicing their debt at higher rates,” Senior Deputy Governor Carolyn Rogers said in prepared remarks.

Many households and businesses built up liquid assets during the pandemic, the bank said, and a “growing number” of mortgage borrowers with fixed-payment flexible rate mortgages are making lump sum payments ahead of renewal.