Canada's unstoppable $2.5 trillion debt juggernaut is fuelling financial stress

Equifax Canada report reveals rising mortgage delinquencies

Canada's unstoppable $2.5 trillion debt juggernaut is fuelling financial stress
Steve Randall

As Canadians continue their battle with higher prices and borrowing costs, financial stress continues to rise according to Equifax Canada.

Its latest Markey Pulse survey puts total consumer debt at near $2.5 trillion in the first quarter of 2024, up 3.5% year-over-year. Around three quarters of this is mortgage debt, generally considered less risky than many other consumer credit products, but for those whose finances are strained keeping up payments on their home loan may be unachievable.

Overall mortgage delinquencies remain low by historic standards with rates in most parts of Canada lower than pre-pandemic, but Ontario and BC have seen the most significant increases.

For Ontario, the total mortgage balance for loans that have gone 90 days or more without payment reached a record $1 billion – more than double the pre-pandemic level. Toronto and Vancouver have both exceeded the delinquency rates of Q1, 2020.

And Ontario and BC are not the only provinces where mortgage delinquencies are ticking higher, while other credit products are also seeing higher rates of missed payments. Over 1.26 million consumers missed at least one payment on some form of credit commitment in Q1 2024, the highest level since 2020 and up 137,358 (12.2%) compared to Q1 2023.

“The introduction of mortgage stress testing in 2016 has helped to mitigate against the full effect of sustained high interest rates, but we still saw more than 34,000 consumers missing a payment on their mortgage in Q1, which is up 22.7% compared to 12 months ago,” said Rebecca Oakes, VP of Advanced Analytics at Equifax Canada. “It’s not just homeowners feeling the strain. Whether you own or rent, the high cost of living remains a heavy burden for many.”

Consumers are shopping around for better deals on their borrowing and the research shows that for mortgages, lender switching has become more prevalent with almost 26% choosing another provider in the last quarter of 2023, up from 22% in 2022, and nearly 7% switched from one of the Big 5 Banks to other lenders.

“These are challenging economic conditions and as financial stress increases we are seeing consumers adapting their credit decisions to help manage through this period,” said Oakes. “Many are extending their mortgage length to reduce their payments and mitigate the impact of payment shocks, despite the penalty of longer loan commitment terms. People are also seeking better deals and rates, leading to relatively more lender switching and more consumers actively checking their credit scores - a nearly 19% rise in the number of Equifax Canada credit score checks compared to the same period last year.”