Canada

Canadian Mortgage Holders See Credit Improve, But It Doesn’t Mean What You Think

Canadian real estate owners with a mortgage are doing “very good” with their payments. The Canada Mortgage and Housing Corporation (CMHC), using Equifax data, is observing credit score improvements across the country. The average credit score of Canadian mortgage holders is improving. This may come as a surprise to some, but it doesn’t mean what most people think it does.

A Quick Overview of Credit Scores

Credit scores are a quick way for lenders to view a quantified version of borrower risk. The higher the score, the lower the chance of finding a borrower that will default on debt in theory. A poor quality credit score is below 620, which means you have little to no credit history, or suck at paying bills. The average score is between 620 and 679, which is the average of everyone – not just homeowners. Good is 680 to 719, very good is between 720 to 779, and excellent is above 780. Once you’re in “good” territory, you’re less likely to be denied a loan. Higher credit scores can save people cash on interest payments though.

Higher credit scores are indicative of a borrower’s risk under regular circumstances. That is, in a non-recessionary environment, without a significant correction to home prices. The Great Recession saw those with excellent credit default at a higher rate than “poor” folks. Actually, the surge in US defaults was exclusive to investors with excellent credit. We know, it’s not as fun as blaming poor people and immigrants for all of society’s problems. The point is, excellent credit in a liquidity event doesn’t lower defaults… despite what the old white dudes that typically cause a liquidity crisis tell everyone.

Toronto Real Estate

Credit scores of mortgage holders across Greater Toronto are improving. Toronto’s average Equifax score for mortgage holders was 775 in Q1 2018, up 10 points over the past 5 years. To contrast, Ottawa hit 770, up 5 points over the same period. Hamilton was 772, up 14 points over the same period. The increase in Toronto is pretty much inline with the rest of the province’s major real estate markets.

Toronto Mortgage Holders – Average Credit Score

The average Equifax credit score of a mortgage holder in Toronto, compared to those in Ottawa and Hamilton.

Source: CMHC, Equifax, Better Dwelling.

Vancouver Real Estate

Vancouver is seeing the average credit score of homeowners improve. Greater Vancouver mortgage holders had an average score of 776 in Q1 2018, up 6 points over the past 5 years. To contrast, Victoria had an average of 780, up 5 points over the same period. Mortgage holders in Abbotsford-Mission had an average score of 771, up 10 points. The trend across the province is generally mild improvements.

Vancouver Mortgage Holders – Average Credit Score

The average Equifax credit score of a mortgage holder in Vancouver, compared to those in Victoria, Abbotsford-Mission, and Kelowna.

Source: CMHC, Equifax, Better Dwelling.

Montreal Real Estate

Vancouver is seeing the average credit score of homeowners improve. Montreal mortgage holders had an average credit score of 768 in Q1 2018, up 5 points over the past 5 years. To contrast, Quebec City had an average of 772, up 5 points over the same period. The trend in Montreal is consistent with other major cities in both Quebec and the rest of Canada.

Montreal Mortgage Holders – Average Credit Score

The average Equifax credit score of a mortgage holder in Montreal, compared to those in Quebec City.

Source: CMHC, Equifax, Better Dwelling.

Canadian homeowners with a mortgage are seeing improvements in their credit score. Almost all large cities have an average of “very good,” and most have seen improvements over the past 5 years. Of course, this is one of those trends that aren’t all that useful, much like mortgage defaults. Loans to people with high scores only perform under normal circumstances. Are home prices across the country rising by nearly 50% over the past 5 years normal circumstances?

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9 Comments

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  • Ahmed 1 month ago

    Excellent post, and points. If you can’t afford your payments, you sell. If you never default, your credit score *should* rise. Ask any insolvency expert, and they’ll tell you the same.

    • Ian 1 month ago

      A lot of terrible old rules are being perpetual, or people use poor context. In 2008, people often say that Toronto didn’t crash, because it is nothing like the US markets. Actually, it didn’t crash because it still hadn’t recovered from the 1990 crash in inflation adjusted values. Yes, almost 20 years later, people were still trying to break even.

    • Pheonix Guy 1 month ago

      Reminds me of a saying that developed in the US around 2008, “a rolling loan gathers no loss.”

      They won’t find credit hits or defaults, until they find the bag holders.

      • @xelan_gta 1 month ago

        Pretty sure they already found those.
        It’s pretty clear that Vancouver’s market peaked and Toronto is only temporary holding up because of condos while detached still below 2017 peak.

  • Joseph 1 month ago

    It’s kind of a nothing burger that Equifax would even report mortgage holder credit scores. Most lenders won’t give you a mortgage, unless you already have a decent credit score.

  • Michael W 1 month ago

    “despite what the old white dudes that typically cause a liquidity crisis tell everyone.”

    Most important take away. Who’s telling you everything is fine, when money laundering and foreign speculators are driving prices to more than double in Vancouver and Toronto over 3 years? The banks, the mortgage insurers, the real estate agents, the government, the bond sellers…

    • Bluetheimpala 1 month ago

      This is a bit of a false narrative. Don’t forget uncle tony and all the locals who have been playing musical chairs. Most of the mess is because of FOMO by your neighbour or friend or family member. Foreigners may have been chasing yield and moving capital but ultimately we should’ve engaged the media and politicians like the kiwis did if we were that concerned. But when we’re making money who cares right? Wrong! Everyone became a gambler and now they need to hit double zero to cash out. It isn’t my families responsibility to bail them out. Out of the ashes rises the Phoenix. BD4L.

      • MH 1 month ago

        Can we pin this comment to the top after every article for the next 36 months?

      • @xelan_gta 1 month ago

        Well said, Blue

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