Canadian Consumer Debt Hits $2 Trillion For First Time As Mortgages Boom

The debt carried by Canadian households has hit the $2 trillion mark for the first time, driven up by rapidly rising mortgage balances, credit rating agency Equifax said in a report released Monday.

Canadians owed $2.041 trillion on mortgages, car loans, credit cards and other debt in the third quarter of this year, up 3.8 per cent from a year ago. 

“Despite the pandemic, the third quarter was huge in terms of refinances and new mortgages,” Rebecca Oakes, assistant vice-president of advanced analytics at Equifax Canada, told HuffPost Canada. 

The average new mortgage surpassed the $300,000 mark for the first time, up 8.6 per cent from a year ago.

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A prolonged period of low interest rates has helped Canadians consumer debt to balloon by a third in just the past six years, according to Equifax data. It passed the $1.5-trillion mark in 2014.

Record-low interest rates have pushed the monthly cost of owning a home to its lowest level in four years, according to economists at National Bank of Canada. Meanwhile, lockdowns have meant fewer things for consumers to spend on, driving up savings, resulting in bigger down payments. 

Those things combined to push up the average home sale price by 15.2 per cent from a year ago, to $607,250 in October, according to the Canadian Real Estate Association.

Oakes noted that car loans have also soared, up 11.7 per cent in a year, which she says may be linked to commuters switching away from public transit, at least temporarily, during the COVID-19 pandemic.

Delinquencies way down… for now

Despite the jump in debt ― and the decline in employment ― seen this year, debt delinquencies fell sharply in the third quarter, down almost 12 per cent.

But those numbers are largely the result of the mortgage and credit card deferral programs the banks launched this spring, amid the pandemic’s first wave, Oakes said. Deferred debt does not count as delinquent debt.

Amid the first wave of lockdowns, lenders offered mortgage borrowers up to six months of deferrals on payments, and the Canadian Bankers Association says more than 796,000 Canadians took advantage of those deferrals, or skip-a-payment options.

Of those deferrals, 86 per cent had come to an end as of October 31, and with a second wave of lockdowns upon us, that has some consumer debt experts a little nervous.

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The key measure of delinquency looks at debts where payments haven’t been made in more than 90 days, so if there is a spike in non-payment, it won’t show up in the data until the end of this year or the beginning of next year, Oakes explained.

She added that Equifax is “closely monitoring” what appears to be a spike in early-stage delinquencies on credit cards, meaning people missing one or two payments.

Credit cards are a good indicator of trouble ahead “because that’s the first thing people stop paying,” she said.

Overall, Oakes said, Canadian households are “managing well” through the pandemic so far, noting that consumers are planning to be particularly prudent this holiday shopping season.

And for those who do get into debt trouble, Oakes advises contacting  your lender, who may be open to accommodation these days.

“If you know you’re going to struggle with your payments, speak you your lender, because there’s probably something they can do to help.”

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