Canadian HELOC Debt Hits A 9-Year High For Growth, An Abrupt Surge In Borrowing

Canada’s rising borrowing costs aren’t slowing down households from borrowing home equity. In fact, the exact opposite is happening according to home equity line of credit (HELOC) debt in May. HELOC debt suddenly surged to the fastest growth in nearly a decade. Even rising at such a rapid rate, the numbers understate the extent of home equity borrowing. All debt secured by home equity is growing 3x faster than just HELOCs. 

Canadian HELOC Debt Hits $171 Billion

Canadian HELOC debt has been kind of slow over the past few years, but that’s changing really fast. The balance of HELOC debt reached $171.2 billion in May, the most since November 2020. It was 1.4% (+$2.3 billion) higher than a month before and 3.0% (+$5.0 billion) higher than last year. It’s a huge pile of debt, equivalent to the GDP of some whole countries. 

Canadian HELOC Debt

The outstanding balance of Canadian home equity line of credit (HELOC) held by institutions.

Source: OSFI; Better Dwelling.

Canadian HELOC Debt Is Growing At The Fastest Rate Since 2013

There’s a couple of things that jump out when looking at these numbers. The first is the size of May’s loans, which are nearly half the growth for the whole year. That’s an aggressive surge in borrowing. Households that didn’t need a HELOC, suddenly felt like borrowing as rates climbed.

The second is the rate of growth, which is the fastest seen in nearly a decade. Annual growth for May hasn’t been this high since 2013, with only a brief pop around 2018. Though this is largely due to how Canada has begun to classify HELOC debt.

Canadian HELOC Growth

The annual growth rate for Canadian HELOC debt.

Source: OSFI; Better Dwelling.

Growth of Home Equity Borrowing Is 3x The Size Of HELOCs

HELOC debt is growing very fast but perhaps not as fast as many would expect. Everyone and their mom is bragging about how much cheap home equity they can borrow. It’s likely floating the whole hot tub industry. How can the growth be “just” a few billion? That’s because Canada adopted a very narrow definition for its HELOC numbers.

HELOC-like products exist that aren’t included. These are still secured against home equity in a similar way, but only variable rate loans are HELOCs. Things like combined loan plans (CLPs) that regulators recently warned about, aren’t included. Ditto for any home equity-based loans with fixed rates.  

Regulatory filings for all personal loans secured by housing sends that number surging. The balance of these loans hit $289.9 billion in May, according to filings with OSFI. It’s 9.0% (+$24.7 billion) higher than last year, and 69% greater than just HELOC debt. Much higher growth and a much bigger pile of borrowed home equity. 

Canadians are tapping their home equity using HELOCs at an unusually fast rate. The single month surge being the equivalent of nearly half of all HELOC debt in the past year is alarming. It’s even worse when you realize the total of all HELOCs and similar products is rising at 3x the rate.

Regulators warn that borrowing significant equity after a price surge is a bad idea. Tapping equity when it’s not needed can make households more vulnerable to shock. Some lenders have even told investors they consider home equity to be “exaggerated.” Others are warning it may have been a temporary gain, likely to disappear in the coming months. But the debt? That’ll stick until you repay it, even as interest rates rise.

6 Comments

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  • Ron Bruce 4 months ago

    Canadian real estate’s fast growth has lenders looking carefully at risk. For example, the Chief Risk Officer at BMO told the Bank’s shareholders that recent gains might “exaggerate” value. The collateral value of the home might not be reliable (worth as much as people think it is now). Consequently, they’ve had to up manual verification to determine if borrowers will pay, even if prices fall.
    Who is regulating this Ponzi scheme? Banks make up their own rules and change their opinions at will. Where do home buyers go when the information given by the Bank can’t be relied upon but for a week or two?

    • J 4 months ago

      They cry to the poor house while the bank, gov, and big money laugh. That’s free market capitalism for you.

  • Vince 4 months ago

    You are missing an important point here.

    I have significant savings and have an upcoming mortgage renewal. In fact, with this pandemic our investment portfolio essentially slowed us to pay off a 30 year loan in 5 years. Our mortgage broker suggested that we pay down the majority of the mortgage with our savings and carry a small HELOC until rates come down again. That provides the flexibility to pay less interest and limit total loan interest in the short term.

    I think this is a savvy move for people with the means to do so. I suspect HELOCs will grow and mortgage balances will fall.

    • Craig 4 months ago

      Hate to break it bud, but if your HELOC is lower than your mortgage you just got screwed. Find a better broker.

  • Mark 4 months ago

    These delusional home “owners” will stop at nothing to maintain their financed fairy-tale lifestyles. The coming housing crash will be absolutely epic. Remember, 35% of GDP in this country is tied to real estate, directly or indirectly. Once this bubble bursts, there will not be an economy in Canada. Buckle up and prepare accordingly.

  • Attila Gulyas 4 months ago

    I’m 63 years old today. I owned a very nice 3 bedroom sidesplit in a lovely neighbourhood in Port Perry Ontario. It was 1989, and I had a 19.5% 5year mortgage. I made my payments just like everyone else in Canada that had 15-20% mortgages. We didn’t fill our diapers and run back to our parents basements… But we also weren’t dumb enough to pay Skip the Dishes $20 bucks for a 7 dollar Starbucks. I think the bubble wrapped generation flunked math. I didn’t have the bank of Mom and Dad to turn to. This generation does, and yet they are fiscally irresponsible in a rising rate environment.

    I agree with Mark’s previous comments… I see foreclosures and a big bad housing crash in Canada. No more realtors signs on front lawns announcing
    “SOLD $500,000 OVER ASKING”

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