Mortgage surge brings Canada’s consumer debt to $ 1.7 trillion

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An increase in mortgages increases consumer debt in Canada despite declining credit card use, as households invest more money in their homes while spending less on everything else.

New mortgages were up 41% in the first quarter compared to the same period in 2020 when the pandemic began, according to a statement released Tuesday by the consumer credit bureau. Equifax Inc. The average limit on new mortgages – the amount for which borrowers have been approved – jumped more than 20% to C $ 326,930 ($ 270,490).

The increase in the number and size of mortgages taken out by Canadians has brought the country’s outstanding consumer debt to nearly C $ 2.1 trillion ($ 1.7 trillion), despite a decline in mortgage loans. Credit card balances at their lowest level in six years, Equifax said.

Homes under construction in a development in Langford, British Columbia, Canada.

Photographer: James MacDonald / Bloomberg

“Lower interest rates, multiple lockdowns and higher unemployment rates have led to changes in consumer behavior,” said Rebecca Oakes, assistant vice president of advanced analytics at Equifax’s Canadian unit , in a press release accompanying the report. “Competition among home buyers is fierce in many markets across the country. “

The pandemic has helped stimulate a record boom in the Canadian housing market, as lower interest rates and new demand for larger living spaces fueled bidding wars for first-floor homes. With a number of provinces moving in and out of lockdown over the past 15 months, Canadians have also had fewer opportunities to spend on everything from restaurants and clothing to entertainment.

A higher savings rate, combined with emergency income support from the government, contributed to the housing boom while helping consumers pay off their credit card debt.

Decrease in bad debts

Excluding mortgages, the average consumer debt size in Canada fell 4.2% in the first quarter from a year ago to C $ 20,430, while non-mortgage defaults fell 22% over the same period, according to data from Equifax.

Mortgage defaults are themselves at an all-time low, although a notable exception is Canada’s most expensive housing market, Vancouver, which in the first quarter saw a 14.6% increase. the rate of defaults over 90 days or more.

The signs start to emerge that the housing market slows down after reaching a Peak in March, although activity is still well above historical standards. A stricter government stress test for mortgages, which went into effect this month, will reduce the size of loans borrowers can take out. Meanwhile, rising vaccination rates and an easing of Covid-19 restrictions could also change the way consumers spend.

“The successful deployment of vaccines will be the critical factor in opening up the economy, which will have a significant impact on consumer spending and debt management,” Oakes said in the statement. “Canadians should be prepared at some point, which will likely come in this calendar year, when governments begin to tighten support mechanisms. “

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