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A key measure of household debt rose in the first quarter as the COVID-19 pandemic began to take hold of the economy, Statistics Canada said Friday.

The agency reported household credit market debt as a proportion of household disposable income rose to 176.9 per cent from 175.6 per cent.

In other words, there was $1.77 in credit market debt for every dollar of household disposable income.

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Statistics Canada added that annual trends show that lower income households tended to have a higher debt to disposable income ratio.

BMO economist Priscilla Thiagamoorthy said well before the pandemic that household debt was a key vulnerability for the economy.

“We could see a blip in the next quarter as the ratio declines amid a slowdown in borrowing and government measures shore up incomes,” Thiagamoorthy wrote in report.

“But with the economic downturn deeply impacting income growth and low rates enticing borrowing, the debt ratios will likely hit fresh record highs in the coming quarters leaving households even more indebted.”

On a seasonally adjusted basis, total credit market borrowing increased $1.9 billion to $27.6 billion in the first quarter. Mortgage loans rose $3.8 billion to $23.1 billion, while demand for consumer credit and non-mortgage loans fell $1.9 billion to $4.5 billion.

Overall, Statistics Canada said credit market debt totalled $2.33 trillion at the end of the quarter including $1.53 trillion in mortgage debt and $802.1 billion in consumer credit and non-mortgage loans.

Meanwhile, the household debt service ratio — measured as total obligated payments of principal and interest on credit market debt as a proportion of household disposable income — fell to 14.67 per cent from 14.81 per cent.

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“One silver lining in today’s report was the decline in debt servicing costs, with the DSR falling for the first time in more than two years as interest rates fell across a broad range of loans,” TD Bank economist Ksenia Bushmeneva wrote.

“In addition to lower interest rates, deferrals and other modifications of mortgages and other credit products also helped lower expenses related to debt servicing.”

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