canadian mortgage debt

Record Mortgage Growth and Higher HELOC Usage in Q2

Driven by a strong housing market and low interest rates, mortgages saw record growth across the country in the second quarter.

Nationwide, volume was up 60.2% compared to the same period in 2020, but was exceptionally strong in British Columbia where mortgage volume was up 85.7%, according to new data from Equifax Canada.

“Apart from a strong housing market, seasonality and refinancing also played a big role in the new mortgage growth this quarter,” the report noted.

Mortgage balances also continued to increase, rising to over $355,000 in the quarter, up from $327,000 in Q1 and marking a 22% jump from a year earlier.

Equifax reported that Home Equity Line of Credit (HELOC) usage was up as well, rising 56.7% compared to the previous year to a 10-year high.

“The HELOC trend is worrisome as often the payments are tied to a variable interest rate,” said Rebecca Oakes, AVP of Advanced Analytics at Equifax Canada. “In 2018, when interest rates went up, we saw a drop in credit card payments, especially among consumers with a HELOC. It also led to higher bankruptcies among older consumers with HELOCs.”

The growth in HELOCS was attributed to strong mortgage growth and low interest rates. However, during the third-quarter earnings from the Big 6 banks, five of the six banks reported lower HELOC drawdowns compared to a year ago.

Non-Mortgage Debt Rises

Overall, consumer debt rose 7.5% on an annualized basis to $2.15 trillion.

On an individual basis, overall debt per person was down 1.6% from last year to $20,640 per person.

The report noted that credit card debt is once again rising, doubling the volume from a year ago when it was at its lowest level.

And with inflation up 3.7% in the past 12 months, that could present challenges for some, according to Oakes.

“Prices for consumer goods have risen and if the inflation trend continues, there is potential for an earlier-than-planned interest rate increase to curb this,” she said. “With many consumers now heavily leveraged and the potential for increases on variable rate mortgage and HELOCs, consumers may find themselves not in a position to pay back their debt obligations if interest rates rise. This can lead to higher insolvencies.”

Delinquencies Falling

Despite government support and lenders’ deferral programs ending, 90+ day delinquency rates for both mortgage and non-mortgage products were down in the second quarter.

Mortgage delinquency rates were down by 32.6% compared to a year earlier, Equifax reported. That’s consistent with falling delinquency rates from all of the major banks.

“The consumer credit market continues to recover from the effects of the pandemic, with government support playing an important role in improving Canadians’ credit health,” Oakes said. “We’ll continue to monitor how increases in inflation and decreases in government incentives impact consumer debt levels and insolvencies over the coming months.”