Lending environment in Canada changes post COVID-19

Statistics Canada has published a new report, entitled The evolving landscape of Canadian lending: Key trends in mortgage and non-mortgage loans, which details some of the debt stresses that some clients are likely facing.  

“Canadian policy makers are paying close attention to debt accumulation,” say the report’s authors. “Canadians are (also) becoming increasingly concerned about rising debt levels.” 

The report states that non-mortgage loans (secured, unsecured, revolving, lines of credit and installment loans) are now above levels seen before the pandemic, growing 13.7 per cent in the third quarter of 2023 when compared with the first quarter of 2020. Overall loans for passenger vehicles have trended upwards as financing rates jumped from 4.1 per cent in 2020 to eight per cent in 2023. Despite this hike, they say the demand for private passenger vehicle loans remained strong.  

Population growth, meanwhile, in part contributed to a rise in credit card balances, with more than 1.3-million new card holders being reported in the third quarter of 2023 when compared with the same period 12 months prior. According to Equifax statistics cited in the report, Canadians’ average credit card balance rose from $3,727 to $4,119. 

Home equity line of credit (HELOC) debt also trended upwards during the period being studied. They point to Mortgage Professionals Canada statistics which suggest 28 per cent of HELOC funds were used for debt consolidation, 25 per cent for home renovations, 25 per cent for consumption and 22 per cent for investment purposes.  

Uninsured mortgage loans 

Uninsured mortgage loans also reportedly grew faster than insured mortgages as house prices rose, pushing many homes above the $1-million mark, making them ineligible for insurance. They also note that amortization terms and monthly mortgage payments are also on the rise.  

“Some chartered banks have been accommodating borrowers by allowing the principal owed to grow to 105 per cent of the original loan value before requiring any additional payments. Consequently, the share of mortgages with an amortization period longer than 25 years has been increasing. The share of new, uninsured mortgages with an amortization period longer than 25 years rose to 52 per cent in the third quarter of 2023, up 12 per cent from 40 per cent in the third quarter of 2019,” the report states.

“Presuming mortgage rates evolve according to current market expectations, the median payment increases for mortgage holders over the 2023 to 2026 period will be about 20 per cent higher relative to February 2022.”