Regulatory filings show that loans secured from real estate have descended into negative territory
Economists and ratings agencies have long been sounding the alarm over the amounts of debt carried by Canadians. That includes the burden of home equity lines of credit (HELOCs), which a significant number of households have been sorely tempted to use and misuse in recent years.
But new filings from the Office of the Superintendent of Financial Institutions (OSFI) suggest a change of heart among Canada’s consumers. According to Better Dwelling, the balance of loans secured by homes in December was $268.17 billion, a $28-billion or 9.47% decline from the month before. It represented a year-on-year decrease of 5.06%, the first negative trend since April 2015.
“It’s also the largest decline we could find in the over 7 years of data,” Better Dwelling noted.
Dissecting the figures, it was clear that most of the decrease came from the personal-loan segment of the space. Personal loans secured by homes dropped to $247.63 billion, down $18.8 billion or 7.05% compared to the previous month. On a year-on-year basis, it was a 1.02% reduction.
That’s not to say that business loans secured by real estate didn’t decrease significantly. The balance for such loans fell to $20.54 billion in December, spelling a $9.2-billion or 31% reduction compared to the previous month. Compared to a year earlier, that movement represented a 36.37% plunge.
“The annual pace of growth for this segment has been negative since April 2018,” the news outlet noted.
In a report last year, the Financial Consumer Agency of Canada (FCAC) also noted lenders’ tendency to combine term mortgages with HELOCs and other credit products, which could increase consumers’ vulnerability to overborrowing, debt persistence, and wealth erosion. Earlier this year, it also noted an apparent lack of knowledge among many HELOC users.
“[M]any consumers appear to lack awareness of the terms and conditions of this financial product, exposing them to the risk of over‑borrowing, debt persistence, uninformed decision-making and wealth erosion,” the agency said in January.
It also found that around 25% of HELOC borrowers are unaware that they aren’t paying down their debt, but only paying interest on their loans every month. The average balance among such HELOC holders was $65,000.
The OSFI figures shed no light on the reasons for this apparent reversal in Canadian households’ attitudes. But given rising interest rates, increasing costs of living, and stabilizing housing prices, it may be just about time.
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