The Canadian credit market has grown but it appears that consumers are generally managing their debt well.
The mortgage market continues to record a slower pace of growth although performance remain generally good.
TransUnion’s Industry Insights Report for the first quarter of 2019 shows that the number of consumers with access to credit grew 1.3% year-over-year to 28.9 million while the total balance of these credit products grew 4.2% to $1.85 trillion.
Non-revolving credit products including auto loans and installment loans led the growth in consumer credit with a 3.1% rise in the number of consumers holding at least one of these products.
“The Canadian consumer credit market expanded against a backdrop of moderating economic growth, signs of increasing inflationary pressures and higher interest rates. It’s a big positive that this credit growth hasn’t come at the expense of serious delinquencies, which remained broadly flat,” said Matt Fabian, director of financial services research and consulting for TransUnion Canada. “The shift in focus towards non-revolving credit products is an interesting development and may be indicative of wider changes in consumer spending behavior and confidence.”
Mortgage market continues to slow
Mortgage origination figures are for Q4 2018 and show a 1.3% decline year-over-year as the impact of the stress test and rising interest rates remained.
The data shows how lending and housing market conditions vary across regions with BC recording a 19.3% decline in originations year-over-year due to additional provincial market-cooling measures.
At a city level, mortgage originations declined by 1.3% in Toronto but grew 8% in Montreal.
Mortgage balances showed a year-over-year decline of 4.2% in Q1 2019 and spanned all risk tiers, with subprime and near prime tiers falling the most at 6.4% and 6.9% respectively.
“This is now the third consecutive quarter we have seen a decline in both mortgage originations and balances. Adjustment to the new stress test regulations has been slow in many areas, and it will be interesting to see if any residual year-on-year declines remain after market demand fully adjusts to these new conditions,” said Fabian.
The data also shows a decline in HELOCs with a year-over-year decline in accounts of more than 10%.
Again, TransUnion says this may be due to tighter lending restrictions, as the overall line of credit market grew; originations were up 15.6% and line of credit accounts had the highest average non-mortgage balances.
Delinquency rates generally steady
TransUnion’s report reveals that delinquency rates across Canadian consumer credit products remained relatively stable year-over-year in Q1 2019.
For credit cards, the most commonly held product amongst Canadian consumers, consumer-level serious delinquency rates dropped only slightly, down 5 basis points (bps) to 3.12%. Similarly, small changes were seen in delinquencies for line of credit accounts (down 2 bps), auto loans (up 2 bps) and mortgages (also up 2 bps).
A more significant change was seen in installment loans, up 14 bps YoY, which is perhaps reflective of the increase in lending to riskier tiers in this category observed in recent quarters.
“The Canadian consumer credit market remains robust with delinquencies rates staying broadly stable despite a growth in overall lending levels. However, the economy is slowing and continues to face some headwinds, which could eventually create some pressure on segments of consumers that could impact credit demand and their ability to service their debt obligations. As we progress through this business cycle, lenders will need to remain vigilant and continue to adjust their underwriting strategies and portfolio management strategies to accommodate changing macro-economic conditions and consumer demand,” concluded Fabian.