Total amount of Canada’s consumer debt reached $2.1 trillion in Q1

Due to an increase in mortgage borrowing, consumer debt level rose in the first quarter of 2021, in spite of weaker usage of credit cards. Canadian households direct more money into their properties while spending less on other categories.

According to the recent report by Equifax Inc., new mortgage borrowing was up by 41% over Q1 compared to a year earlier. The average limit on new mortgages rose by more than 20% and reached $326,930.

The growth in the number and size of mortgages has led Canada’s outstanding consumer debts to about $2.1 trillion (US$1.7 trillion), in spite of a decline in credit card debts to their lowest mark in 6 years.

“Low interest rates, several lockdowns and higher unemployment rates have changed the consumer behavior,” – Rebecca Oakes from Equifax says. “There’s a strong competition among buyers in many markets across the country.”

The pandemic has caused a record boom in Canada’s real estate market as extremely low interest rates and new demand for larger homes have fueled bidding wars. As certain provinces have been going in and out of lockdown during the previous 15 months, Canadians have also had fewer possibilities to spend on restaurants or entertainment.

Larger savings combined with financial support from the government have played an important role for the market boom, also helping Canadians pay down their credit card debts.

In case we exclude mortgages from calculations, we’ll see that the size of the average consumer’s debt was down by 4.2% in Q1 annually to $20,430. Meanwhile, non-mortgage delinquencies fell by 22%, Equifax says.

At the same time, mortgage delinquencies were record low with only one significant exception. Canada’s most expensive real estate market, Vancouver, showed a 14.6% gain in the rate of delinquencies during the first quarter.

Although the market activity remains higher than usual, there are certain signs that the housing market is slowing after a March peak. A tighter mortgage stress test, which came into effect this month, will cut the size of the loans borrowers can get. At the same time, growing rates of vaccination and an easing of COVID-19 restrictions may change the consumers’ spending trajectory.

“Successful vaccine rollouts will be the critical point for economic reopening. It will have a strong influence on consumer spending and debt management,” – Oakes noted. “Canadians need to get ready for a possible reducing of support this year”.