Bank of Canada Governor Mark Carney said Tuesday he is encouraged by new developments on the household debt front, noting that recent trends suggest efforts to depress lending are working.
Testifying before the Commons finance committee, Carney told MPs that both debt accumulation and the number of new variable mortgages are declining sharply.
Household debt has kept growing in Canada despite the weak economy, mostly because, as Carney admits, the Bank of Canada has kept interest rates so low they are almost impossible for Canadians to resist.
But in recent months, debt accumulation has slowed to four per cent annual growth, from 10%, and the percentage of new mortgages on short-term variable rates has fallen to the low teens, from as high as 30%.
Carney said he still regards household debt — which currently is at a near-record 151% of disposable income — as the number-one domestic risk to the Canadian economy, but he suggested the recent data was encouraging.
"I will note that the proportion of variable debt of new mortgages has gone down quite substantially and is running in the low teens," he said.
"New debt is locking in, the question is whether existing debt is doing the same."
Locking in to fixed-term mortgages leaves household less vulnerable to interest rate increases.
As he did last week, Carney repeated his hint that interest rates would indeed increase given the improving global economic outlook and firmer growth in Canada, but gave no further guidance as to when that might occur.
The bank has kept its policy rate at 1% since September 2010, and Canadians have taken advantage of it to make big purchases, buy homes and take out loans using their homes as collateral. That has contributed to the price of homes rising, perhaps more than they should, he said.
