Photo: James Bombales

Canadian household debt ratios climbed to a record high in the third quarter of 2017.

Last quarter, Canadians owed $1.71 for every dollar of household disposable income, according to Statistics Canada’s Q3 2017 National Balance Sheet, published last Thursday.

Overall, total household debt, including consumer credit, mortgage and non-mortgage loans, hit $2.1 trillion at the end of September, up 1.4 per cent from the previous quarter.

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“Today’s household debt numbers told a familiar story as borrowing once again outpaced disposable income growth, pushing the ever-popular debt-to-income ratio to another record high,” writes RBC economist Josh Nye, in a statement.

The biggest contributor to the increase of household debt was mortgage debt which reached $1.4 trillion in Q3, up 1.5 per cent from the previous quarter.

With homebuyers rushing into the market before new mortgage rules come into effect on January 1st , BMO economist Benjamin Reitzes writes that household debt could continue to rise in Q4.

Although households took on more debt last quarter, the amount of income needed to service that debt was relatively flat. The household debt service ratio saw a 0.1 percentage point increase, and now sits at roughly 14 per cent.

According to Reitzes, the ratio rose over the past three quarters and remains consistent with levels recorded since 2010, but it’s expected to change as the Bank of Canada continues to gradually increase interest rates.

“Look for a continued creep higher as interest rates are likely to climb further in 2018, which is a reason for the BoC to tighten cautiously,” writes Reitzes, in a statement.

Nye agrees that the ratio is bound to experience an uptick with as interest rates increase, but with the prevalence of fixed rate mortgage debt, households won’t feel the increase all at once.

Looking forward, Nye says that with higher incomes the trend in debt-to-income ratio should moderate, but “households will remain stuck with high debt loads — keeping financial system vulnerabilities ‘elevated’ in the years to come.”

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