TORONTO, ON (March 04, 2021) – Increased mortgage activity and rising house prices in the fourth quarter of 2020 pushed the overall consumer debt level to $2.07 trillion, up 1.5 per cent from last quarter and up 4.1 per cent from Q4 2019, according to Equifax Canada’s most recent report on consumer credit conditions.
Despite the increase in total debt, the average consumer debt (excluding mortgages) dropped again this quarter to $23,043, which is a year-over-year decrease of 3.0 per cent and a decline of 0.8 per cent compared to the previous quarter. The drop in consumer debt is primarily due to credit card balance which has been gradually declining since March last year due to reduced spending and consumers paying down more of their balance on a monthly basis.
“This reduction has been a positive consumer shift but that’s not to say we are out of the woods in terms of recovery,” said Rebecca Oakes, AVP of Advanced Analytics at Equifax Canada. “Deferral programs are ending and pockets of financial stress are starting to emerge for some consumers. Credit card spend is also starting to rise again.”
Deferrals and delinquencies during the pandemic
More than three million Canadians took advantage of credit payment deferrals since the start of the pandemic and four out of five of these have now completely exited the use of deferral programs. Payment deferrals have been instrumental in preventing consumers impacted by the pandemic from becoming delinquent on their debt obligations. Even as consumers come out of deferral programs, the 90+ day delinquency rate for non-mortgage products stayed level in Q4 at 0.98 per cent while the same rate for mortgages was 0.16 per cent. However, early-stage delinquency (where an individual has missed one or two months of payments) continued to rise during Q4. Mortgages saw a 31 per cent increase in the 30+ day delinquency rate, while the 30+ day delinquency rate on installment loans jumped by 76 per cent when compared to Q3 2020.
“The numbers suggest recovery will remain very uneven,” added Oakes. “Quebec, for example, has shown early non-mortgage delinquency continue to fall despite consumers leaving deferral programs, whereas Alberta has the highest increase in consumers missing mortgage payments. The support mechanisms across Canada remain pivotal in the prevention of further increased delinquency levels.”
First-time homebuyers, low interest rates and lending
High demand for housing and lower interest rates continued to fuel new mortgages with a 22.1 per cent year-over-year volume growth in Q4 2020. The average mortgage loan amount rose by 14.4 per cent when compared to Q4 2019, marking the biggest year-over-year jump since 2015. Higher loan amounts can also be attributed to first-time homebuyers who saw higher than average year over year volume growth of 26.9 per cent in Q4 2020.
“Rising prices in real estate hot spots have led to first-time homebuyers taking on more mortgage debt than ever in order to get their foot on the property ladder,” said Oakes. “For example, in B.C. we saw average new mortgages for first-time buyers exceed $470K during the last quarter yet they are not being deterred; volumes were up more than 35 per cent compared to the same period in 2019.”
New auto finance and installment loans trended down this quarter with an 8.4 per cent and a 21.5 per cent year over year drop respectively, meanwhile, new credit cards are slowly recovering with a 10 per cent increase versus the last quarter.
Lenders are also showing some signs of caution as a result of this uncertain period. Consumers are still being offered additional credit, but on higher interest rate products like credit cards, limits on newly-opened cards have been lower for the last two quarters when compared to the same periods in 2019.
“During periods of economic uncertainty, consumers and lenders may take proactive action to reduce variability in credit commitments, switching or encouraging the use of lower interest rate products,” said Oakes. “We are still in an uncertain period with some isolated pockets of financial stress emerging. We will continue to closely monitor this over the coming months.”
Debt (excluding mortgages) & Delinquency Rates
Average Debt Change
(Q4 2020 vs. Q4 2019)
Delinquency Rate Change
Major City Analysis – Debt (excluding mortgages) & Delinquency Rates
Province Analysis - Debt (excluding mortgages) & Delinquency Rates
* Based on Equifax data for Q4 2020