Learning from 2023 and Looking Ahead to 2024: Key Consumer Credit Trends
By Equifax Canada
With total credit card balances in Canada reaching an all-time high of $113.4 billion in the third quarter of 2023, here are some key current and emerging consumer trends that lenders may want to watch for. The total credit card balance represents a 16 per cent increase from the same period last year. As credit card demand and balances rise, consumer debt and delinquency rates should be watched closely. The insights below can help lenders handle delinquencies and minimize portfolio risk.
Key learnings from current and emerging consumer trends
Credit trend data is showing that some of the emerging consumer credit trends in Q3 2023 are:
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A larger reliance on unsecured lending (i.e. loans and credit cards) as Canadians try to cope with the rising inflation rates. In general, the demand for credit has been fueled by new to credit and new to Canada consumers.
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New mortgage originations dropped by 9.5 per cent from Q3 2022 but HELOC monthly repayment amounts have risen due to interest rates, which shows an accelerated rise in arrears. Currently, delinquency for mortgage consumers is growing faster than for non mortgage - especially for Ontario and British Columbia.
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There are signs of some new growth for auto loans - which has seen a small decrease in prices. However, the combination of higher prices over the last 24 months coupled with rising interest rates are causing severe delinquencies. In the new car market, new originations are improving, despite higher prices.
Some of the key learnings that may be helpful to lenders are
that when analyzing their portfolio, lenders may want to look to
leverage segmentation techniques to ensure that they understand
where they may have pockets of consumers with financial stress. For
example, consumers who live in certain geographies may be
experiencing financial stress differently based on varying costs of
living. When a portfolio is looked at as a whole, certain risks can
occasionally be masked. Carving out certain consumer segments can
help lenders identify risks and review
account management policies as they deem appropriate.
Analysis of debt and default rates
According to Equifax Canada, total consumer debt in Canada stood at $2.4 trillion in Q3 2023, an increase of $80.9 billion from the same period last year. Given that more consumers are missing payments and entering into collections, lenders may want to prepare their collection teams to handle cases using pertinent information on each consumer’s true overall financial situation. Understanding the entire picture of the consumer and working with their unique case may aid in finding their path to recovery.
Looking ahead to 2024
In 2024, it is expected that there will be slower growth in the mortgage balance until interest rates reduce within Canada. Nonetheless, the mortgage balance is forecasted to reach $1.9 trillion by the end of 2024. As well, payment shocks from renewals are expected to increase during 2024 but it may not be until 2025 before the full impact starts to be seen on mortgage delinquencies.
More generally, as cash flow becomes more constrained in the Canadian economy, insolvencies are expected to rise sharply into 2024. Lenders can watch for changes in consumer behaviours and keep an eye on credit trends and insights.
Ready to learn more?
Equifax offers a range of innovative solutions that can help clients make more informed and confident credit risk decisions, and use predictive data to help retain mortgage clients in the current economic climate.
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