Household Debt-to-Income Ratio Ticked Higher in Q2: Statistics Canada
Canadian households are feeling the squeeze as debt levels outpace income growth. Statistics Canada reported on September 11, 2025, that the household debt-to-income ratio rose to 174.9% in the second quarter of 2025. This marks a 1.1% increase from the previous quarter. For every dollar of disposable income, Canadians now owe $1.75 in credit market debt. The uptick signals ongoing financial strain amid high interest rates and a cooling economy.
Key Metrics: Debt Grows Faster Than Income
The agency’s data shows household credit market debt climbed 1% to over $3.1 trillion in Q2. Mortgages made up nearly 75% of that total. Borrowing slowed to a seasonally adjusted $31.6 billion, down from $34.5 billion in Q1. Despite the slowdown, debt expansion exceeded disposable income growth, pushing the ratio higher.
The household debt service ratio also edged up. It hit 14.41% from 14.37% in the prior quarter. This measures total payments on principal and interest as a share of disposable income. It reflects the bite of higher rates on monthly budgets.
Financial assets grew 2.7% to a record $11.2 trillion, boosted by strong equity markets in the U.S. and Canada. Residential real estate values stayed flat, ending a two-quarter rise despite slight monthly price gains. These offsets provide some buffer, but net worth still lags debt pressures.
Why the Increase? High Rates and Slowing Borrowing
Interest rates remain a key driver. The Bank of Canada’s overnight rate sits at 4.25% after cuts in June and July. Yet, fixed mortgage renewals at higher rates continue to hit households. Mortgage debt outpaced non-mortgage borrowings in Q2.
Income growth slowed as the labor market cools. Unemployment ticked up to 6.4% in August. Inflation, though easing, still erodes purchasing power. A separate Parliamentary Budget Officer report noted some households falling behind top earners in wealth distribution.
Experts like those at TD Economics point to these factors. Debt growth outstripped income, lifting the ratio from 173.7% in Q1. The debt service ratio held nearly steady at 14.4%, but any rise adds stress.
Regional and Sector Breakdown
Debt patterns vary across Canada. Ontario and British Columbia, with high housing costs, saw sharper mortgage increases. In contrast, the Prairies showed more stable consumer credit.
| Metric | Q1 2025 | Q2 2025 | Change |
|---|---|---|---|
| Debt-to-Income Ratio | 173.7% | 174.9% | +1.1% |
| Debt Service Ratio | 14.37% | 14.41% | +0.04% |
| Total Debt Stock | $3.07T | $3.1T | +1% |
| Borrowing Pace | $34.5B | $31.6B | -8.4% |
Mortgages dominate at 75%, followed by consumer credit (15%) and non-mortgage loans (10%). Younger households (under 35) face the highest ratios, often above 200%.
Implications for Canadians and the Economy
This rise heightens vulnerability. A 1% rate hike could add $200 monthly to average mortgage payments. With 70% of households holding variable-rate debt, renewals loom large. The ratio, near historic highs, signals limited room for shocks like job losses.
For the broader economy, it curbs spending. Consumer confidence dipped in August surveys. Retail sales grew just 0.2% in July. The Bank of Canada may pause further cuts if inflation rebounds.
Homebuyers feel it most. Qualifying for mortgages grew tougher with stress tests. First-time buyers, already stretched, delay purchases. Rental vacancies hit lows in major cities, pushing costs up 8% year-over-year.
Expert Reactions: Caution Amid Resilience
Analysts urge vigilance. “Debt growth outpacing income is a red flag,” said Diana Yan of TD Economics. She noted the ratio’s climb despite asset gains. Priya Misra at JPMorgan highlighted shelter costs as a persistent drag.
On the flip side, some see stability. The debt service ratio’s small uptick suggests manageable payments for now. BMO’s Robert Kavcic called it “a modest warning” in a cooling market.
Social media buzzed post-release. On X, users shared: “174.9%? Time to budget harder.” Economists debated Fed parallels, with Canada’s ratio far above the U.S.’s 100%.
Looking Ahead: Rate Cuts or More Pressure?
The Bank of Canada’s next decision is October 23. Markets price in a 25-basis-point cut, but hot CPI data could delay it. If rates fall, debt service eases; if not, ratios may climb further.
Q3 data drops December 2025. Watch disposable income and borrowing trends. For households, focus on essentials: Build emergency funds covering 3-6 months of expenses.
This Q2 tick-up underscores caution. Canada’s households remain resilient, but the margin thins. Policymakers and families alike must tread carefully.