In its annual review of the financial system, the Central Bank stated that Canada’s real estate market boom and the corresponding increase in mortgage loans have supported economic growth in the short term, but in the medium term, it has also increased risks to the economy and financial system.

Although consumer debt has fallen since the beginning of 2020, the increase in mortgage debt has been more than enough to offset this decline, and total household debt has risen sharply since mid-2020.

The bank said: “The vulnerabilities associated with rising household debt are very serious and have increased in the past year.” He added that during the pandemic, the quality of new mortgages has declined.

In the second half of 2020, the proportion of newly issued mortgages with a loan-to-income ratio of more than 450% rose sharply, accounting for 22% of all new mortgages.This is beyond the 2016-17 range before the introduction of the Canadian financial regulator Mortgage stress test designed to reduce risky loans.

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The bank said: “If housing prices and household income fall due to economic shocks in the future, some households may need to cut spending. This will slow economic growth and may put pressure on the financial system.”

It pointed out that thanks to the well-capitalized banking industry and the strong support of the government and banks, Canada’s financial system has proven to be resilient.

Other vulnerabilities include mispricing assets that face climate-related risks, cyber threats, and fragile corporate debt financing from certain markets.