MOODY'S: BANKS SHOULD KEEP EYE ON MORTGAGE RENEWALS, LONG CAR LOANS
Mar 13, 2018
By Bob Komsic
With nearly half of Canadian mortgages to see their interest rates rise within the year, the rating agency Moody’s warns, rising debt is not a problem for banks yet, but soon might be.
In a just released report, Moody’s says after new rules were introduced to tighten the real estate market, most Canadian mortgages are now uninsured, which means financial institutions are on the hook if borrowers default.
The rating agency points out that was not the case five years ago, so the expected increase needs to be monitored.
Currently, less than three out of every 1,000 borrowers are more than three months behind on their mortgage.
But it’s not just mortgages.
Moody’s is also concerned about car loans that are getting longer.
The average new one is currently spread out at nearly six years.
And even though there’s no indication most consumers are having trouble paying them, the report spells out this blunt worst-case scenario.
”Longer consumer auto loan terms increase negative equity – the amount by which the remaining loan balance exceeds the collateral value – because vehicle values fall faster than the loan is repaid. This shortfall if often rolled into the initial balance of a new car loan, compounding the negative equity and credit risk.”