Mortgages drive Canadian debt to new heights
Rising consumer debt in Canada is placing significant pressure on households, with mortgages now making up nearly three-quarters of the total debt load.
As Canadians await potential relief from high interest rates, many are feeling the squeeze, according to TransUnion Canada’s latest Credit Industry Insights Report. It revealed that Canada’s total credit debt surged to $2.41 trillion in the first quarter of 2024, up 3.2% from the previous year.
Mortgages, which account for 74% of this debt, have remained relatively stable due to strong credit quality among borrowers and rising home values. However, the burden of non-mortgage debt – covering credit cards, personal loans, and lines of credit – continued to grow, reflecting the financial strain many Canadians are under.
New mortgage originations have also stalled due to elevated interest rates, leading to an increase in housing supply as some potential buyers remain on the sidelines.
Matthew Fabian, director of financial services research and consulting at TransUnion Canada, suggested that potential interest rate reductions by the Bank of Canada could provide some relief to consumers.
“However, lenders need to carefully monitor consumer behaviours, and predict and identify resilient versus vulnerable borrowers,” Fabian added. “Our analysis shows that a 50 bps decrease in mortgage interest rates from current levels could reduce mortgage payments by 12% or more for new or renewable mortgages openings in the coming months and help reduce the number of Canadians that are unable to make their monthly payment.”
The TransUnion Credit Industry Indicator (CII) saw a slight decrease of one point from the previous year to 104.5, attributed to a slowdown in credit supply and rising delinquency rates. However, this was partially offset by higher balances and strong demand for credit.
Credit access has expanded, with the number of credit-active consumers growing by 3.7% year-over-year. Currently, 32 million Canadians, or approximately 92% of credit-eligible adults, have at least one active credit product.
Younger generations are driving much of this growth, with Millennials and Gen Z contributing $98 billion to the increase in outstanding balances year-over-year. Gen Z consumers, in particular, continued to enter the credit market at a rapid pace, often starting with credit cards as their first credit product.
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This influx has contributed to a 10.4% year-over-year increase in new credit openings, amounting to $77.9 billion in balances, with new credit card balances alone growing by 7.5%.
The report noted that average balances for major credit products held by Canadians continued to rise during Q2 2024. Auto loan balances saw the highest growth at 6.2% year-over-year, driven by higher vehicle prices. Credit card balances grew by 4.7%, while installment loan and mortgage balances increased by 4.4% and 3.1%, respectively.
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