September 20, 2017

Mortgage holders tend to have higher credit scores

Key messages

  • Most mortgages in Canada are held by borrowers with a very good or an excellent credit score. This share has been trending up since the third quarter of 2015.
  • The share of mortgage holders in Toronto and Vancouver with a poor or fair credit score has been steadily trending down and is now single-digit in both markets. Despite larger mortgage debt loads, potential risks in these two markets, Canada’s largest, remain muted.
  • The oil-rich markets of Edmonton and Calgary are still facing challenges. Of the six largest markets in Canada, these two have the highest share of mortgage holders with the lowest credit scores.

Credit scores are steady across Canada

In Canada, the majority of mortgages are held by borrowers with a very good or an excellent credit score, a share that has been trending up since the third quarter of 2015, reaching 80.7% in the first quarter of 2017.1 The share of mortgage holders with an excellent credit score has increased by almost one percentage point in the first quarter of 2017 compared to the same quarter in 2016. This shows that the current outstanding mortgage debt is largely supported by consumers with healthy credit history.

While consumers with poor or fair credit scores are a small share of the market, they represent a more significant source of risk of default of payment and potential losses for lenders than all consumers with higher credit scores. The share of mortgage holders with a fair or poor credit score has dropped to 10.2%, in the first quarter of 2017, from 11.2% two years earlier.

Overall, mortgage holders tend to have better credit scores than other consumers. In the first quarter of 2017, 76.8% of consumers without a mortgage had a very good or an excellent credit score, a share 3.9 percentage points lower than among mortgage holders. Additionally, we find that this gap between mortgage holders and other consumers has been widening since the end of 2014, when the share of consumers with a very good or an excellent credit score was only 2.9 percentage points higher among mortgage holders than among other consumers. The widening of this gap has largely been driven by the improvement of scores among mortgage holders.

On the lower end of the spectrum, we find that 15.2% of consumers without a mortgage had a poor or fair credit score in the first quarter of 2017, which is 5 percentage points higher than consumers with a mortgage.

There are differences between cities, however

Among Canada’s six largest metropolitan areas2, only Edmonton and Calgary have a share of mortgage holders with a very good or excellent score lower than the Canadian average. Toronto is the area that has had the largest increase in the last 4 years, with a gain of 3.7 percentage points, followed by Vancouver, with a gain of 2.4 percentage points.

The shares of mortgage holders in Canada’s largest cities with a poor or fair credit score has been generally trending down in Montréal, Ottawa-Gatineau, Toronto and Vancouver, with the largest decreases reported in Toronto and Vancouver: decreases of 2.9 and 1.8 percentage points, respectively, from the first quarter of 2013 to the first quarter of 2017.

The share of mortgage holders in the two lowest credit score ranges remains more elevated in the oil-rich markets of Edmonton and Calgary.

In each of Canada’s six largest markets, the proportion of consumers with poor or fair credit scores is smaller among mortgage holders than among consumers without a mortgage.

The proportion of consumers in the lower end of the credit score spectrum is smaller among mortgage holders than among consumers without a mortgage

Shares of Consumers with a Poor or Fair Credit Score, Large CMAs and Canada, Q1 2013 and Q1 2017

Text version

Shares of Consumers with a Poor or Fair Credit Score, Large CMAs and Canada, Q1 2013 and Q1 2017
    Q1, 2013 Q1, 2017
Montréal With Mortgage 9% 8%
Without Mortgage 13% 14%
Ottawa-Gatineau With Mortgage 9% 8%
Without Mortgage 14% 14%
Toronto With Mortgage 11% 9%
Without Mortgage 17% 15%
Calgary With Mortgage 12% 11%
Without Mortgage 17% 17%
Edmonton With Mortgage 13% 12%
Without Mortgage 19% 20%
Vancouver With Mortgage 9% 7%
Without Mortgage 14% 13%
Canada With Mortgage 12% 10%
Without Mortgage 16% 15%

Source: CMHC (Calculations based on Equifax Canada Data)

View the homeowners’ Debt at a Glance data tables

1 The credit scores used in this report are based on the score of the consumers on the last day of the quarter. For consumers holding an existing mortgage, this score can differ from the score at the time the consumer opened his or her mortgage account.

Risk scores ranges used in this report are the following:

  • Poor (less than 599);
  • Fair (600 – 659);
  • Good (660 – 699);
  • Very Good (700 – 749);
  • Excellent (more than 750)

2 These are Census Metropolitan Areas (CMAs) with populations of over one million according to the 2016 Census of Population. This group includes the following CMAs: Montréal, Ottawa-Gatineau, Toronto, Edmonton, Calgary and Vancouver.

Canada

Share...


Print(opens in a new window)