Understanding current consumer credit trends can help in making informed decisions about your risk strategy. Below are some questions that were asked during the Equifax Q4 2022 consumer credit trends and economic outlook webinar and answered by field experts.
What Should Lenders be Thinking About in the Auto Industry as Supply Chain Issues Improve?
With supply improving in the auto industry, car prices are slowly reducing from their 2021 peak. This supply chain recovery could lead to an increase in new car loans and a clearing of demand backlogs. Due to the higher cost of borrowing, however, there are more risks associated with newer auto loans.
As a lender, it’s important to be equipped to understand
your consumer’s financial position and their capacity to take on a
new loan. Delinquencies are rising at a much faster pace for non
bank auto loans when compared to other products. Lenders should be
proactive in terms of monitoring their customer base and
looking for signs of stress in the form of payment and spending
behavioural changes. Strengthening collections and recoveries may also
help to manage the market risks.
Is The Mortgage Market All Doom and Gloom or is There a Silver Lining Somewhere?
The interest rates in 2022 did seem to cool off the hot housing market. Unfortunately, high interest rates have made it more difficult for many first-time homebuyers. Those already in the market who have a renewal coming up may also be in for a payment shock. Furthermore, a significant number of consumers who currently have a fixed mortgage rate never went through a stress test requirement, an analysis done by lenders to determine the ability of a borrower to handle mortgage payments in financial distress and/or a market crisis. Therefore, when they renew their mortgage, they may not be able to afford the new rate.
For lenders in the mortgage industry, be aware that a cooled-off market means that there are fewer homes up for sale, creating a mortgage market slowdown. As well, higher interest rates can make some consumers price-sensitive, influencing them to shop around for the best mortgage rate. In other cases, the higher interest rate might make it more difficult for homebuyers to qualify for a mortgage, especially after considering the changes to the mortgage stress test and the new Office of the Superintendent of Financial Institutions (OSFI) guidelines coming later this year.
The silver lining for lenders is that there may still be an opportunity for new growth. Lenders should offer rates that are market-competitive and attractive to the buyer. Lenders may want to monitor credit activity and changes in consumer spending behaviour closely.
In terms of Credit Card Delinquency and Missed Payments, are there any Differences across the Provinces and Territories?
Overall, delinquency is up across the country. Delinquency is not close to pre-pandemic levels but has increased year-over-year (YoY) across all provinces. There was a significant rise in delinquency rates in Ontario and BC, followed by those in Quebec and some of the Atlantic provinces. Below is a breakdown of the year-over-year (YoY) debt level change from Q4 2021 to Q4 2022 for the three provinces with the highest delinquency rates.
Ontario had an average debt of $21,474. This is an increase of 3.56% YoY.
British Columbia had an average debt of $21,810, up YoY by 2.58%.
Quebec had an average debt of $18,495. This is an increase of 2.47% YoY.
An analysis of average debt across provinces, age groups, and major cities can be found in Equifax Canada Q4 2022 Market Pulse Quarterly Trends press release: Economic Headwinds Impacting Debt Levels and Credit Payment Behaviour
Do you have further questions about consumer credit trends? Sign up to Attend our Quarterly Credit Trends Webinars and Receive our Latest Economic Insights Reports.
We want to help Canadians live their financial best. Learn more about ways we can help you minimizing portfolio risk. For further questions, you can also reach us by contacting your Equifax Account Representative or directly at 1-855-233-9226 and follow us on Twitter and LinkedIn.
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