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Statscan says household credit market debt as a proportion of household disposable income rose to 167.8 per cent in the second quarter, up from 166.6 per cent in the previous three-month period.Todd Korol/The Globe and Mail

The amount Canadians owe compared with their disposable income hit a record high in the second quarter as per capita household net worth inched lower.

Statistics Canada said Friday household credit market debt as a proportion of household disposable income increased to 167.8 per cent, up from 166.6 per cent in the first quarter.

That means for every dollar of household disposable income there was $1.68 in credit market debt.

The increase in the debt ratio came as household net worth on a per capita basis fell by $1,300 to $285,900.

"A decline in household net worth, albeit modest, alongside a sharp increase in consumer credit growth are notable as together they suggest that the ability of households to absorb higher interest rates continued to deteriorate," RBC economist Laura Cooper wrote in a report.

Household debt has been identified as a key risk for the economy as low interest rates have made it easier for Canadians to borrow money. However, rates have started to climb in recent months.

The Bank of Canada has raised its key interest rate twice since the end of the second quarter, a move that has prompted the big Canadian banks to raise their prime rates which are used for variable-rate mortgages and other loans like lines of credit.

Bond yields have also climbed in recent months, pushing rates for new fixed-rate mortgages higher.

"Going forward, the spending environment – for consumers, businesses and governments – will become more challenging in light of the recent interest rate hikes by the Bank of Canada," TD Bank economist Dina Ignjatovic wrote in a report.

"With additional hikes likely in the pipeline, there will be some further deterioration in the debt service ratio in the coming quarters."

The increase in the debt-to-income ratio came as household income increased 1.2 per cent while household credit market debt rose 1.9 per cent.

Total household credit market debt, which includes consumer credit, mortgage and non-mortgage loans, totalled nearly $2.08-trillion in the second quarter.

Mortgage debt increased 1.6 per cent to $1.36-trillion, while consumer credit grew 2.4 per cent to $609.6-billion.

The household debt service ratio, the total obligated payments of principal and interest as a proportion of household disposable income, was flat at 14.2 per cent in the second quarter.

The interest-only debt service ratio was 6.0 per cent in the second quarter, down slightly from the previous quarter.

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