Delinquency rates starting to soar in Canada

More Canadians are beginning to crack under the pressure of increased mortgage payments, new data on consumer credit showed today.

Mortgage delinquency rates were up more than 50 per cent at the end of last year from the year before, with two provinces leading the way, says the Equifax credit trends report for the fourth quarter.

In Ontario and British Columbia, the country’s most expensive housing markets, delinquency rates soared by 135.2 per cent and 62 per cent, respectively, rising above pre-pandemic levels.

An especially “worrying trend” is a sharp increase in mortgage borrowers filing for bankruptcy, the report says. Canada-wide, such filings are up 23 per cent, but in Ontario and British Columbia, bankruptcy filings spiked by 76.5 per cent and 46.5 per cent, respectively.

“With the prospect of renewing mortgages at substantially higher rates than current ones, consumers who locked in historically low interest rates in 2020 — particularly those with substantial loan amounts — may face challenges in sustaining their payments,” said Rebecca Oakes, vice president of advanced analytics at Equifax Canada.

Equifax says anyone who renewed their mortgage in the fourth quarter of 2023 saw their payments increase on average by $457, with hikes of $680 and more in Ontario and British Columbia.

“There were also growing signs of deteriorating credit performance for mortgage holders in the last quarter of 2023, especially for those facing a monthly payment increase of more than $500,” said the report.

Mortgagors in Ontario and British Columbia are increasingly missing payments on their credit cards, especially younger homeowners, said Equifax.

Non-mortgage debt is also climbing, up 4.1 per cent in the fourth quarter, mostly driven by credit cards.

But that doesn’t mean Canadians are spending more — quite the opposite.

“Credit card balances that were being driven by a rise in consumer spending are now being driven by reduced payment levels instead,” said Oakes.

Fewer Canadians are paying off their credit card bills in full, a trend that is especially noticeable among those with balances over $50,000 on variable-rate home equity lines of credit (HELOC) , the report said. The average payment per dollar spent also declined.

“The high cost of living continues to have an impact across all consumer segments, and is leading to a worrying increase in non-mortgage delinquency rates,” said the report.

Over 153,000 more consumers missed payments on credit products, which is above pre-pandemic levels. Auto loans and unsecured lines of credit are also showing rising arrears levels, the report said.

“Factors such as high cost of living, inflation, credit card payments, and mortgage renewal worries are coming at consumers right now,” said Oakes.

“Budgets have been pushed to the limit for some. There’s no doubt Canadians are feeling the financial pinch right now.”