Mortgages account for nearly three-quarters of Canadian debt as consumers hope for interest rate cuts

Key findings from TransUnion^® Report:

• Canadian household debt reaches a record high of $2.41 trillion, with mortgage debt accounting for 74 percent of total outstanding debt.

• Due to increasing consumer demand, more and more Canadians are coming under pressure to pay.

• The percentage of consumers 90 days or more behind on their payments increased 22 basis points year-over-year to 1.74%, as higher living costs combined with higher interest rates continue to increase pressure on vulnerable consumer segments.

TORONTO, August 27, 2024 (GLOBE NEWSWIRE) – Canada’s total credit debt rose 3.2% year-on-year to a record $2.41 trillion in the first quarter of the year, according to TransUnion Canada Credit Industry Insights Report Q2 2024which is produced quarterly to track trends and the health of the consumer credit market. Mortgage debt, which represents 74% of total debt, remains relatively healthy, supported by strong credit scores among mortgage holders and rising property values. Non-mortgage debt, including credit cards, loans and lines of credit, continues to rise, reflecting higher spending needs among Canadian consumers.

The TransUnion Credit Industry Indicator (CII) declined slightly by one point to 104.5 year-on-year, reflecting a slowdown in credit supply coupled with an increase in delinquency rates, which were partially offset by higher balances and strong credit demand.

Credit access – the total number of credit-active consumers – is a key driver of this growth, increasing 3.7% year-over-year. By Q2 2024, 32 million Canadians will have at least one active credit product in their wallet, representing approximately 92% of adult credit-eligible Canadians. Younger Canadians are the primary driver of increased participation, with Millennials (born 1980 to 1994) and Generation Z (born 1995 to 2010) driving $98 billion in outstanding balance growth year-over-year. Generation Z consumers continue to be the fastest-growing segment, with more consumers from this group reaching credit-eligible age (18+) each year and entering the credit market for the very first time.

New loans increased by 10.4% year-on-year (representing a balance of $77.9 billion), mainly due to credit cards, with new credit card balances¹ Growth of 7.5%. This is partly due to the continued influx of Generation Z consumers into the credit market, who typically apply for a credit card as their first credit product. New mortgage originations have stagnated, leading to an increase in property supply as high interest rates continue to deter some buyers.

More and more consumers are under payment stress
Average balances of major products held by Canadian consumers continued to rise in the second quarter of 2024, with auto loan balances showing the highest growth (6.2% year-on-year) due to higher ticket prices. In the second quarter of 2024, average credit card balances increased 4.7% year-on-year, and average installment loan and mortgage balances increased 4.4% and 3.1%, respectively.

The story continues

The growth in average credit card balances was primarily due to consumers spending more on their credit cards while making fewer monthly payments. This suggests that certain segments of the Canadian population may be experiencing liquidity issues while becoming increasingly reliant on credit cards. The number of Canadians making only minimum payments on their credit cards increased six basis points (bps) year-on-year to 1.2% of all credit card holders.

Higher outstanding balances combined with higher borrowing costs may have limited some consumers’ financial flexibility, making them more vulnerable to reduced disposable income or the ability to cover unexpected expenses. The increase in minimum payment amounts was found to have the greatest impact on mortgages (13.5% year-over-year), followed by credit cards (10.6% year-over-year) and personal loans (10.5% year-over-year). The growth in payment amounts was seen across all risk levels.².

“If the Bank of Canada continues to cut interest rates, payment pressures could ease. However, lenders need to closely monitor consumer behaviour and distinguish resilient from vulnerable borrowers. Our analysis shows that a 50 basis point cut in mortgage rates from current levels could reduce mortgage payments on new or renewable mortgages by 12% or more in the coming months and help reduce the number of Canadians unable to make their monthly payments,” said Matthew Fabian, director of financial services research and advisory at TransUnion Canada.

Arrears continue to rise as cost of living pressure increases
The overall consumer delinquency rate (payments 90 or more days past due on any account) continued to rise, up 22 basis points year-over-year to 1.74%, as pressures from increased living costs combined with high interest rates hit vulnerable consumer segments.

This phenomenon is particularly evident among subprime borrowers, where delinquency rates have increased by 131 basis points to 15.7%. Some consumers with lower credit scores are struggling to make their payments in the current economic climate.

Alberta had the highest rate of severe delinquencies in Canada at 2.18%, followed by consumers in Manitoba (2.03%) and New Brunswick (2.03%). Alberta also had the highest year-on-year increase in delinquencies at 30 basis points, followed by Ontario.

In addition to rising delinquencies, consumers are moving from early stages (30 days late) to later stages (90 days late) more frequently. A higher percentage of delinquent consumers moved or postponed payments from early to later stages of delinquency—12% in the second quarter of 2024, compared to a rate of 7% a year ago. When borrowers fail to make payments and move into later stages of delinquency, the impact can include higher interest rates, fees and penalties, as well as a credit score downgrade, across all products.

“During these times of uncertainty, lenders need to monitor and predict portfolio health indicators by leveraging holistic consumer attributes. Our recent research studies have shown that by incorporating trend-based consumer-level data, we can help predict resilient consumers to drive smart growth, identify early warning signs of vulnerability to mitigate risk, and effectively prioritize collection resources to predict repayments. The Canadian credit industry would benefit if consumers could continue to use credit for responsible behavior,” said Fabian.

About TransUnion^® (NYSE: TRU)

TransUnion is a global information and analytics company with over 13,000 employees in more than 30 countries, including Canada, where we are the preferred credit reporting agency for the financial services ecosystem and most of Canada’s largest banks. We build trust by ensuring that every person in the marketplace is reliably represented. We do this by providing an actionable view of consumers that is managed with care.

Through our acquisitions and technology investments, we have developed innovative solutions that go beyond our strong foundation in core lending to areas such as marketing, fraud prevention, risk and advanced analytics, enabling consumers and businesses to do business with confidence and achieve great things. We call it Information for Good® – and it leads to economic opportunity, great experiences and personal empowerment for millions of people around the world.

For more information, see: www.transunion.ca

For further information or to arrange an interview, please contact:

Contact: Katie Duffy
E-mail: [email protected]
Phone: +1 647-772-0969

¹ New balances are defined as the sum of outstanding balances of credit cards opened within the quarter (Q1 2024).

² According to TransUnion CreditVision® risk score: Subprime = 300-639; Near Prime = 640-719; Prime = 720-759; Prime plus = 760-799; Super Prime = 800+