Mortgage volume fell in Q2 as credit card debt rose: Equifax

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Canadian borrowers applied the brakes to mortgage borrowing in the second quarter while ramping up non-mortgage debt.

That still led to overall debt levels reaching a new record of $2.3 trillion in the quarter, up 8.2% from the previous year, according to new data from Equifax Canada.

Breaking it down, non-mortgage debt, such as auto and credit card loans, was up 5.2% to $591 billion. The average non-mortgage debt carried by the average consumer is now $21,128, Equifax reported.

High inflation—which eased just slightly to 7.6% in July from its 40-year higher of 8.1% in June—has been driving up the cost of living and increasingly impacting consumers’ finances.

Credit card balances are now at their highest level since Q4 2019.

“Financial stress is becoming a very real thing for many more Canadians,” said Rebecca Oakes, Vice-President of Advanced Analytics at Equifax Canada. “Its impact on consumer credit is not just visible in day-to-day credit card spending, but also in other non-mortgage debt like auto loans and lines of credit, where balances are on the rise.”

New mortgage volume, meanwhile, was down 16.4% compared to a year earlier. The average mortgage loan now stands at $367,500 overall, and $430,700 among first-time buyers, Equifax said. In the high-priced markets of Toronto and Vancouver, average new mortgages are above $600,000.

Falling prices not translating into improved affordability

For prospective buyers who have been biding their time on the sidelines waiting for home prices to fall, the sudden rise in interest rates has essentially cancelled out any improvements in affordability.

The Equifax report found that the average mortgage for first-time buyers was down just 0.5% compared to the first quarter, while the average monthly payment has risen by 10%.

“The cooling housing market in Canada should not be mistaken for increasing affordability,” Oakes said in a release. “Affordability depends not just on home prices, but also on monthly payment obligations for a mortgage. Higher interest rates coupled with high inflation can really stretch a consumer’s monthly expenditure, while many could find it difficult to qualify for a mortgage.”

Consumer confidence is wavering

TransUnion Canada’s second-quarter Consumer Pulse Study revealed growing concern among consumers over the state of their finances, with 41% saying their household finances are worse than planned (up 5% from last year).

A majority (63%) said they are “very” or “extremely” concerned about the current rate of inflation, with nearly half (48%) saying they had to cut back on discretionary spending,

The study determined that as many as 7,8 million Canadian consumers may have a “negative capacity” to absorb a $200 monthly payment increase in their cost of living based on their current payment behaviours and “may be unable to keep up with their credit obligations.”

“The implications of interest rate hikes and rising inflation are significant, with the heightened cost of living that leads to higher credit balances as consumers borrow to fund day-to-day expenses,” said Matt Fabian, director of financial services research and consulting at TransUnion.

“This, combined with increased debt-service levels for mortgages, auto and personal loans, are all creating a rapid increase in payment obligations beyond consumers’ control,” he added.

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