Canadians’ credit debt is shrinking, but mortgages surge 26%

by Neil Sharma on 04 Jun 2021

The rate at which Canadians are saving money has never been higher, according to a new TransUnion Canada report, noting that surplus funds are being used to reduce personal debt and buy real estate.

Mortgage originations grew by 25.8% year-over-year in the first quarter of the year as a result of interest rates falling to record lows and, by extension, a substantial rise in refinancing. That also caused home prices to increase by 31.6% in March, with home sales surging by 76.2%.

“We’ve seen that other credit products had a very slow take-up coming out of COVID, but there are new record highs with national home sales, and the hot market is fuelling mortgage growth,” Matt Fabian, director of research and consulting at TransUnion Canada, told CREW. “There was a 26% year-over-year increase in new mortgage originations in the first quarter, and the number keeps accelerating.”

TransUnion anticipates more growth in Q2 before moderating in the latter half of 2021.

Nevertheless, save for mortgages, Canadians are deleveraging their credit debt in tandem with the increasingly buoyant economy. Fabian surmises that such sudden change in consumer behaviour can potentially create problems, namely growth in risky balances, for lenders that don’t adjust accordingly. Lenders should begin replenishing their portfolios with new balances and originations, he added, to ensure a controllable delinquency rate.

Excluding mortgage debt, consumers’ liquidity declined by 2.9% year-over-year in Q1 to $28,900 in large part because their savings rate rose to 28% of disposable income, an all-time high, according to TransUnion’s Industry Insights Report for the quarter.

Although most deferral programs, which were spurred by the COVID-19 pandemic, have concluded, delinquencies fell by 0.63% year-over-year to 1.4% in the first quarter of 2021—non-mortgage delinquencies were even lower, decreasing by 62 basis points to 1.39%.

During the fourth quarter of 2020, Canada’s credit market experienced declining originations, suggesting that consumers were paying off debt rather than securing more.

But as Fabian noted, mortgage originations have grown consistently, and he cited a host of reasons ranging from evolving needs to excess cash in Canadian households. And although mortgage originations are up, the risk of default doesn’t appear to have grown commensurately.

“There’s been a shift in buyer preferences, and there are a whole lot of options for people who have decided to move because they work from home, and they’re making different choices and redirecting their cash and assets towards a different home. People are redirecting their spending because they aren’t travelling, so they’re upgrading and improving their homes,” he said

“We haven’t seen mortgage delinquencies increase and part of that is the nature of mortgages. With the qualifying rules put in place a few years ago, we’ve seen most new mortgages are going to better consumers, so there’s lower risk for defaults. So even though we’ve seen an increase in mortgage originations, we haven’t seen an increase in risk.”

However, there is concern about housing affordability.

“The concern is how long this will continue.”

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