Yadullah Hussain
Nov. 24, 2020
Canadians have often been accused of recklessly racking up debt over the years, but when faced with a real financial crunch, they hunkered down and tightened their fiscal belts.
Fewer Canadians were delinquent in the third quarter while many also managed to rein their credit card balances and auto loans down during the period, according to a new report by TransUnion, a consumer credit reporting agency.
The focus on austerity has been impressive. Around 3.1 million Canadians reportedly took advantage of payments deferrals since the pandemic began, but a majority presumably used the excess cash to pay down credit card balances and other debt.
Auto loan and line of credit total balances in the third quarter contracted 2.9 per cent and 4.3 per cent, respectively. New credit card originations declined by 63 per cent, new lines of credit were 43.4 per cent lower, auto loans contracted by 38 per cent and new loan installments contracted 33.1 per cent, as many Canadians doubled down on austerity.
The frugality meant that Canada’s overall non-mortgage consumer-level delinquency rate fell 48 basis points to 1.44 per cent in the third quarter compared to the same period last year.
“Over the summer we saw early signs that Canadian consumers were adapting to the new economic environment,” Matt Fabian, director of financial services research and consulting at TransUnion, said in a statement released Monday. “While many Canadians remain cautious with their spending, there are early signs of recovery, particularly when noting an increase in the funding of major purchases such as homes and cars.”
Indeed, the lure of owning a house remained too irresistible, with mortgage balances rising 5.6 per cent in the third quarter, TransUnion data shows.
“Mortgages, in particular, experienced higher growth and demand largely due to higher housing prices, which increased new mortgage average balances, and extremely low-interest rates benefitting refinance activity,” the consumer credit agency said.
Among all credit products, mortgages experienced the lowest year-on-year decline of 2.2 per cent, as low-interest rates encouraged refinancing and the early spring lockdowns compelled Canadians to look for bigger houses.
“In the coming months, we expect slower origination volumes even as restrictions ease because lenders will continue to manage and mitigate risk,” added Fabian. “Nevertheless, we do anticipate an increase in delinquency rates next year as deferral options expire and some consumers struggle to maintain payments due to financial impacts caused by a prolonged pandemic,” Fabian said.
TransUnion expects mortgage delinquency rates to increase slightly in 2020 and 2021, but not by much from their current levels of one per cent.
“From an origination perspective, our forecast calls for continued low volumes through 2020, but a rebound for cards and continued demand for mortgages in 2021,” Fabian said.
