Credit delinquency among Canadians has hit a record low. However, Canadians are still are taking on increasing levels of personal debt and a potential rise in interest rates could jeopardize credit quality. Equifax Canada's second-quarter National Consumer Credit Trends Report found that the national 90 day-plus delinquency rate has decreased over the past three years to a record low of 1.19%.
However, it’s not all good news as Canadians have continued to increase their debt burdens in spite of recent regulatory efforts to tighten lending standards. Total debt rose by nearly $77 billion, or 6.1%, from last year's level driven by an 8.6% increase in auto loan balances and a 7.4% increase in outstanding mortgage debt, the credit-scoring agency said.
“The increased demand for credit outside of mortgages is positive for the economy in the short-term, but could limit the ability of over-extended consumers to react to any financial bumps in the road in the future," Cristian deRitis, senior director of consumer credit economics at Moody's Analytics said.
The Equifax Report also revealed that average debt for consumers aged 65 and over shows the greatest year-over-year increase in all age groups at 6.5%.
"The traditional golden years that retirees anticipated have not become a reality as debt loads rise for those over 65. With reduced incomes, often coupled with increased expenses, these individuals are accumulating more debt to boost income through credit so that they can continue to enjoy a pre-retirement lifestyle that they may no longer be able to afford,” said Henrietta Ross, chief executive of the Canadian Association of Credit Counselling Services. “They also may be accumulating debt in an effort to help their own grown children or their own parents who are struggling financially."
Serious delinquency rates are stable across lending products as well as provinces. Toronto has the highest delinquency rate among major metropolitan areas at 1.56% of non-mortgage balances but it has continuously improved since hitting a peak of 2.53% in 2010. The fraction of mortgage loans that were 90 or more days delinquent fell to 0.27% in the second quarter from 0.33% a year earlier.
"Stable home prices and improvements in the labour market should continue to support the market in the future, while the outlook for consumer credit remains positive," advised deRitis. "A sudden rise in interest rates or deterioration in fundamentals in key export markets are risks to this forecast however."
Regina Malina, director of modeling and analytics at Equifax Canada, said that "as the fears of another recession slowly subside, consumers continue to accumulate high levels of debt but with more fiscal responsibility."
The 90-day-plus delinquency rate for mortgages shows a 19.2% decrease from the same period a year earlier, which could be the result of the tighter mortgage lending rules introduced in July 2012, the report said. Mortgage portfolios are growing at a robust pace, showing an increase of 7.4% over the same period last year. Average Mortgage balances are showing small but steady increases coming in at $162,985 compared to $168,387 in the second quarter of 2012.