Canada

Canadian Home Equity Debt Is Finally Grinding To A Halt

Canadians have been using their homes as ATMs, but the pandemic is slowing the binge. Office of the Superintendent of Financial Institutions (OSFI) filings show the balance of loans secured with home equity fell in May. The rate of growth for loans secured with home equity has been dropping over the past few years. Personal loans, the most popular segment, has even begun contracting in real terms.

Loans Secured With Residential Real Estate

Loans secured with residential real estate is when home equity is pledged for credit. By pledging home equity, lenders have an asset they can use to pursue in the event of default. In exchange for the security, borrowers often get a lower interest rate compared to unsecured credit. Borrowers can also often skip stringent income verification. The most common form, and largest balance, is home equity line of credits (HELOCs). However, regular home equity loans are also included in this number.

Canadians Have Over $305 Billion In Debt Secured By Home Equity

Canadians cooled down the rate of home equity borrowing last month, and actually paid some of it off. The balance reached $305.78 billion in May, down 0.64% from the month before. Compared to last year, this represents an increase of 1.53% from the same month last year. The annual growth rate is the slowest since 2016, and the slowdown is driven by a lack of personal borrowing.

Total Loans Secured With Residential Real Estate

The total of personal and business loans, secured with residential real estate.

Source: Regulatory Filings, Better Dwelling.

Personal Borrowing Secured By Home Equity Is Shows Negative Real Growth

Personal debt secured with home equity saw growth drop to the lowest level in years. The balance in this segment fell to $268.88 billion in May, down 0.60% from a month before. Compared to the same month last year, it was just a 0.12% increase. Even with inflation falling to less than half the target rate, this is considered a real decline.

Personal Loans Secured With Residential Real Estate

The total of personal loans, secured with residential real estate.

Source: Regulatory Filings, Better Dwelling.

Business Debt Secured With Home Equity Fell, But Is Still Up From Last Year

Businesses debt secured with home equity fell on the month, but is up significantly from last year. The balance fell to $36.89 billion in May, down 0.95% from a month before. This is actually a gain of 13.08% compared to the same month last year. This segment fell at a faster rate than personal debt, but is still up quite a bit from a year before

Business Loans Secured With Residential Real Estate

The total of business loans, secured with residential real estate.

Source: Regulatory Filings, Better Dwelling.

The slowdown for home equity borrowing is both good or bad, depending on who you are in this economy. Homeowners lowering their liabilities makes them better prepared to absorb economic shock they may face. People aren’t just paying down debt either, they’re also saving. Canada has leaned on credit driven consumption though, and a drop in borrowing amplifies the economic slowdown. The government is trying to stimulate borrowing by dropping rates, but people aren’t comfortable taking the bait.

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5 Comments

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  • OM 2 months ago

    That’s where the (lack of) condo pre-sale money went.

    • GTA Landlord 2 months ago

      Businesses are probably returning the money since CEBA loans give them a little room without worrying about their home.

  • Tia Wolfe 2 months ago

    You can lead a homeowner to a bank, but you can’t force them to take out a loan.

  • straw walker 2 months ago

    The cause for the fall of HELOC loans and other loans secured loans against homes is because these homes are being sold and the loans are then pd. off.
    The rush to sale is continuing ahead of the end of CREB baby cheques.

  • Smaug 2 months ago

    I doubt home owners are less eager to borrow. More likely lenders are refusing HELOC credit limit increases, or refusing HELOC applications outright, if the applicant has anything less than stellar credit and/or has suffered in income loss due to COVID.

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