Industry report shows the beginnings of an increase in demand for credit in Q2
After a year spent in a state of economic and financial uncertainty, Canadian consumers might once again be getting comfortable with the idea of taking on personal debt.
According to the newly released Q2 2021 TransUnion Canada Credit Industry Insights Report, the credit market is taking tentative steps toward recovery as the broader economy reopens.
Amid positive momentum surrounding key consumer credit trends and performance, TransUnion Canada’s Credit Industry Indicator (CII) – which measures consumer credit health trends across the categories of demand, supply, consumer behaviour and performance – rose to 93.5. That reflects a nine-percentage-point advance from the previous quarter, and a 29-point ascent from its lowest point in August 2020.
TransUnion reported a rise in applications for credit in Q2 2021, reflecting the beginnings of a revival in consumer demand for credit. From June 2020 to June 2021, inquiries rose 5%, led predominantly by low-risk consumers; applications from such “super prime” consumers reportedly swelled by 29% year on year. The pandemic-driven housing market boom has sparked significant appetite in the mortgage market, which has been the main driver of growth in new credit.
Prime plus-rated consumers showed just a 7.1% annual increase, while inquiries from prime-rated respondents increased by 4.8%. Meanwhile, near prime consumers submitted 0.5% fewer applications, while inquiries from subprime consumers edged down by 0.7%. Origination volumes have started to edge up as the economy reopens – Q1 2021 originations were up 34% compared to where they were during the worst of the pandemic in Q2 2020 – though they still aren’t at their pre-pandemic strength.
Still, consumers are being somewhat cautious. TransUnion called back to its Q2 2021 Consumer Pulse survey, where just 21% of respondents – down 26% from the prior quarter – said they planned to apply for new credit or to refinance existing credit for the rest of 2021.
The total amount of revolving balances declined by 2.6% year-on-year in Q2 2021, including a 3.9% decrease in total credit card balances – which make up over three quarters of all revolving balances – and a 2.2% decrease in line of credit balances.
“We are seeing consumers taking advantage of their higher liquidity to pay down debt,” said Matt Fabian, director of financial services research and consulting at TransUnion. “According to TransUnion’s recent Consumer Pulse survey, 46% have reduced their discretionary spending and 20% said they paid down debt faster.”
Meanwhile, non-revolving credit balances increased since the second quarter of last year, with prime and above risk tiers of consumers being the primary drivers. Unsecured loans saw a 17% year-on-year rise, followed by an 8% increase in mortgage balances driven by higher real estate prices. Strong demand and a shift in preference toward pick-up trucks, SUVs, and luxury brands in the auto market has contributed to a 3.3% rise in auto loan balances.
“While pandemic-related threats to the economy do remain, as Canada continues to reopen, we expect consumers to increase their spending and for the recent acceleration in new credit growth to continue,” Fabian said.
