Early-stage delinquencies for all credit products are on the rise: Equifax

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Early-stage delinquencies on both mortgage and non-mortgage debt continued to rise in the second quarter, a sign that high interest rates are increasingly weighing on Canadian borrowers.

The 30+ day delinquency rate on non-mortgage debt was up by 26.3% compared to 12 months ago, according to data from Equifax Canada’s Q2 Consumer Credit Trends and Economic Insights report.

“The number of consumers that are starting to miss at least one payment grew last quarter and is continuing to grow,” Rebecca Oakes, Vice-President of Advanced Analytics at Equifax Canada, said during a presentation of the data.

She noted some “pretty large jumps” in the number of missed payments when compared to last year.

“We’re seeing that movement across all products now,” she added. “The good news is that for some of those products, [such as mortgages], those levels are still firmly below where we were pre-pandemic.”

The data show that delinquency rates for auto loans and personal and home equity lines of credit (HELOCs) are now at or near pre-pandemic levels. Missed payments on HELOCs are up 71% compared to the second quarter of 2022, and are just 12.8% below 2019 levels, Equifax said, adding that HELOC holders have seen their payments rise by over $200 a month.

Mortgage delinquencies are now 32.6% above year-ago levels, but remain 36% lower than pre-pandemic levels in 2019.

Regionally, interest rate hikes are having the biggest impact on mortgage holders in Ontario and British Columbia, where delinquencies have spiked 86.9% and 33.9%, respectively.

“Factors such as substantial house price increases, larger loan amounts, a higher proportion of variable-rate mortgages, and the elevated cost of living have contributed to the delinquency rise,” Oakes said. “Additionally, payment shocks for newly renewed mortgages and upcoming renewals are poised to impact consumer finances, particularly for those facing mortgage terms that extend beyond their expected retirement age, leaving them with limited options for reducing monthly payment costs.”

Mortgage growth being driven by first-time buyers

Equifax also reported that new mortgage originations in the quarter were driven by first-time buyers, with originations by this demographic up 59% compared to the first quarter.

“The initial rate hikes [in 2022] made many first-time homebuyers delay their purchases, but we are now seeing a bigger increase in first-time homebuyers from Q1 2023, despite higher interest rates,” said Swarnima Pandey, Analytics Insight Manager at Equifax.

While overall originations were up 40% compared to the first quarter, driven in part by the Bank of Canada rate pause and increased buying activity, they still remain well below levels seen in 2020 and 2021.

The average loan amount for first-time buyers in the second quarter was $408,000, up slightly from $406,000 in the first quarter. More than a third (35%) of these mortgages have an amortization of more than 25 years, according to Equifax.

Consumer proposals on the rise

Where there has been a significant increase is the rise in consumer proposals, Equifax reported.

The largest increase in consumer proposals has been seen among those with a mortgage, which are up 42% from last year, while there’s been a 25% increase among consumers without a mortgage.

“[Consumer] proposals are there as a tool to help them manage financial stress if you have assets, so perhaps we actually would see a little bit more coming through for that mortgage group,” Oakes noted.

Credit demand being boosted by newcomers

Despite a slowdown in the mortgage loan growth, which was up just 1% in the quarter, total consumer debt in Canada rose 1.9% to $2.4 trillion, driven largely by growth in credit card balances.

While demand from existing credit consumers was down 2.2%, Equifax says loan growth was driven by “new to credit” consumers applying for Canadian credit for the first time, which is correlated to increased immigration numbers.

As of Q2, one in seven credit applications was from a “new to credit” client, Equifax said.

The number of credit active consumers with less than 24 months of credit activity was up 37.1%, while their average non-mortgage debt went down by 10.2% when compared to Q2 2022.

“This increase was masked by the influx of new credit users in Canada who have much lower debt levels when they first become credit active,” said Oakes.

By contrast, consumers with a credit history of two years or more had an average non-mortgage debt of $22,710, up 1.9% from last year.

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