Beneath the surface of Canada’s stable banking system, the first signs of household debt strain are beginning to emerge.
The latest data from the Canadian Bankers Association show the national mortgage arrears rate edged up to 0.24% in August, its highest level in five years. While still historically low, it points to the same early credit pressures flagged by CIBC Deputy Chief Economist Benjamin Tal in a new report.
While arrears remain low by historical standards, Tal says the latest signs point to a turn in household credit conditions, most visibly among renters, subprime borrowers and homeowners with other debts.
But first, Tal pointed to some of the bright spots in the data.
He noted that credit growth has cooled from its pandemic highs but remains consistent with pre-COVID patterns, supported by steady lending conditions and a healthier borrower mix. Average credit scores are still comfortably above 2019 levels, and although the share of subprime borrowers has ticked higher, it has simply returned to its pre-pandemic norm.
Additionally, Canadians appear to be managing their credit limits prudently, with utilization holding near 65%. He added that insolvencies have stabilized, shifting increasingly toward consumer proposals, cases that carry smaller losses and higher recovery rates for lenders compared with outright bankruptcies.
“Household credit quality indicators do not look too alarming at the moment,” he said. “But a closer look at the margins suggests that the current trend is not your friend,” pointing out, for example, that early-stage delinquencies in the below-prime space are already well above 2019 levels.
Non-mortgage stress is flashing first
Tal says the early signs of strain are primarily appearing among renters and in non-mortgage debt.
“Renters are clearly feeling the impact of a slowing labour market,” he notes, with their credit card and line-of-credit delinquencies now comfortably above 2019 levels.
Homeowners aren’t immune either. Tal says non-mortgage debt held by households with mortgages is starting to show early signs of stress. “Most mortgage borrowers facing difficulties will first stop payments on other credit vehicles such as credit cards and more so lines of credit,” he explains, calling it a clear early warning for lenders.
The bigger test comes in 2026
So far, mortgage arrears remain only slightly higher than before the pandemic, driven more by job losses than rate resets. But Tal expects the real test to arrive in the second half of 2026, when the share of borrowers facing mortgage payment increases of more than 40% could reach five to six per cent of the market—more than double today’s share.
“The message here is that some pressure on mortgage delinquencies is likely to persist and, in fact, might intensify, mostly in the second half of 2026,” he writes.
Still, Tal says lenders’ pre-emptive actions and a job market likely near its peak unemployment rate should help contain losses. “Future credit losses should be consistent or even better than what might be priced in by the market,” he writes.
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Last modified: November 3, 2025