New mortgages surge to record

Red flag raised about HELOC growth

House-hungry Canadians drove new mortgage volumes up to a quarterly high, soaring 60.2 per cent to more than 410,000 in the second quarter from the year before, according to new data from credit company Equifax Canada.

The size of the average new mortgage loan also jumped by 22.2 per cent from last year to more than $355,000.

While new mortgage growth has been strong in major markets across the country, British Columbia saw the biggest increase, rising 85.7 per cent from last year.

The mortgage surge helped push overall consumer debt to $2.15 trillion, up three per cent from the previous quarter and up 7.5 per cent from the year before.

New credit card growth and new auto loans returning to pre-pandemic levels also added to Canadians’ debt, the report said.

Along with the pandemic housing boom, seasonal market trends and refinancing played a role in the mortgage growth, said Equifax.

These mortgage volumes have brought other concerns to the forefront, such as home-equity lines of credit (HELOC).

The number of new HELOCS increased by 56.7 per cent from a year ago to the highest in 10 years.

“The HELOC trend is worrisome as often the payments are tied to a variable interest rate,” said Rebecca Oakes, assistant vice-president of the advanced analytics team at Equifax Canada. “In 2018, when interest rates went up, we saw a drop in credit card payments, especially among consumers with a HELOC. It also led to higher bankruptcies among older consumers with HELOCS.”

Oakes added that the amount of mortgage debt being taken on by borrowers with low credit scores is another concern.

While they make up a small portion of the overall mortgage pool, there’s a pronounced risk of over-leveraging among Canadians who do not have the financial buffer in place to withstand shocks to their finances, such as a job loss or substantial unexpected cost.

Adding to that concern is rising inflation, which could prompt the Bank of Canada to raise rates sooner than expected.

“With many consumers now heavily leveraged and the potential for increases on variable rate mortgage and HELOCS, consumers may find themselves not in a position to pay back their debt obligations if interest rates rise. This can lead to higher insolvencies,” said Oakes.