Canada

Canadian Personal HELOC Growth Rate Nearly Triples In A Month

Canadians are back to using their homes as ATMs. At least they were, during the first month of the pandemic. Office of the Superintendent of Financial Institutions (OSFI) filings show the balance of loans secured by home equity reached a new high in March. The record is less surprising than the annual rate of growth for personal use, which nearly tripled from the month before.

Loans Secured By Real Estate

Loans secured by real estate are credit secured with home equity. They’re more commonly known as home equity lines of credit (HELOCs). By pledging home equity, borrowers can secure credit more easily, with fewer (if any) income checks, and typically at a cheaper interest rate. By itself, HELOCs are just like any other credit – neither good or bad. They actually come in handy for emergencies, like loss of job or business.

They become a problem when that emergency arrives right after home prices spike. If you have to tap your home equity, and are forced to sell, you might have to accept bigger losses than someone who could ride a downturn out. The federal government began warning people about overuse of HELOC debt last year. This was after many banks suggested using HELOCs to buy second homes, and vacation rentals.

Canadians Are Borrowing Home Equity At A Rapid Pace Again

The debt secured by residential property reached a new all-time high. The balance of loans reached $309.32 billion in March, up 1.75% from a month before. This represents an increase of 3.24% when compared to the same month last year. Annual growth may not sound impressive, but this is nearly twice the annual growth seen just a month before.

Total Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

Over $272 Billion of Loans Secured With Home Equity Are Personal Debt

Most of the balance (and growth) were due to personal loans. This segment reached $272.16 billion in March, up 1.36% from a month before. That’s a huge monthly climb, considering the balance is up 1.91% from the same month last year. It’s also nearly 3x the annual rate of growth seen just a month before, and the highest since October 2019. There was definitely a scramble to raid their home equity in March.

Personal Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

People Are Raiding Home Equity For Business Purposes Too

Home equity used to secure business loans also spike in the latest filings. The balance of loans for business purposes reached $37.15 billion in March, up 4.72% from a month before. This represents an increase of 14.15% compared to the same month last year. Typically it’s a good thing to see this segment increase, but the timing of it makes it less clear. This filing would have been before the government extended extra business credit, for the most part.

Business Loans Secured With Residential Real Estate

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

Source: Regulatory Filings, Better Dwelling.

Canadians are tapping their home equity very rapidly, and at a time it could be dangerous for them. At the start of the pandemic, the annual growth rate doubled, and nearly tripled for personal use. Considering the abrupt nature of a pandemic, it’s expected to see homeowners tap home equity. That’s what it’s there for. That doesn’t change that higher debt levels make households more vulnerable to shock. Nor does it change the issue of tapping home equity near all-time highs, during the largest economic shock since the Great Depression.

Note: OSFI has been accepting proposals for delayed filings, so this number may be revised higher in coming months.

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5 Comments

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  • Mitch 4 months ago

    Ooomph. High real estate price problems are highlighted just by that business number. People are probably borrowing to keep afloat because commercial rents are so high, giving a double execution to their wealth.

    • Karen Wilson 4 months ago

      Sure are. A lot of threads in restaurant forums of people trying to figure out if they have to lose their house if they can’t pay their commercial lease. They should probably see an insolvency trustee, but people would prefer to not think they’re in trouble for as long as possible.

  • Trevor 4 months ago

    We’re going to be seeing HELOCs amortized. Some banks have already reduced credit on some HELOC owners.

    Good read from the Globe.

    “In tough times, banks can take your HELOC safety net away”

    https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-in-tough-times-banks-can-take-your-heloc-safety-net-away/

  • Boomer Doomer 4 months ago

    I hope anyone with more than 2 residential real estate lose everything this year. They didn’t care about me when they jacked up housing prices. Why should I care about them?

    • Western 4 months ago

      You got a heart of gold bud. Be careful with that, payback is a b*****

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