Consumer insolvency remains a complex beast
Higher interest rates might not automatically trigger growth in delinquency levels, veteran market observers say.
Contrary to fears of a future Bank of Canada rate hike provoking more insolvencies, data from TransUnion indicated that historically, higher mortgage rates or payments did not “appear to discourage durable spending, render consumers more leveraged, or increase the chance of defaults, as is commonly asserted in newspapers and the financial press,” Murtaza Haider and Stephen Moranis quoted the report as saying.
In the analyst duo’s recent piece for the Financial Post, they noted that the report covered a significant swathe of financial products, particularly mortgages, credit cards, lines of credit, and car loans.
“Consistent with the findings elsewhere, Canadian data also showed that the likelihood of mortgage defaults and delinquencies on instalment loans declined with lower mortgage rates,” Haider and Moranis stated. “But when mortgage rates and payments increased, the Canadian data showed no evidence for delinquencies increasing for mortgages or other types of debt.”
On average, Canadians each owed around $72,500 in debt at the end of September, with the amount increasing by 2.1% annually. Mortgages accounted for much of this upward movement, with its 4.5% year-over-year growth to $1.32 trillion.
Overall consumer credit stood at $1.966 trillion, up by 4.1% annually.
