Consumer debt tops $2.36 trillion in third quarter in Canada: Equifax

Canadians continue to swim in red ink, and the timing couldn’t be worse.

Equifax Canada says an increase in borrowers helped push total consumer debt to $2.36 trillion in the third quarter for a 7.3 per cent rise from last year, even as mortgage volumes decline.

It says average non-mortgage debt rose to $21,183 for the highest level since the second quarter of 2020, with early signs of strain starting to show in auto loans and credit cards.

Overall non-mortgage debt came in at $599.9 billion for a 5.3 per cent climb from last year, and up 1.9 per cent from the third quarter of 2019, as the number of borrowers rose by 3.1 per cent.

Rebecca Oakes, Equifax Canada’s head of advanced analytics, says the rising debt stems from a combination of growth from immigration, pent-up spending, as well as increased borrowing as consumers feel the strain of higher living costs.

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Credit card spending in the quarter was up 17.3 per cent from last year to an all-time high for the time period.

Average spending put on credit cards was almost $2,447, a 21.8 per cent jump from the third quarter of 2019.

There’s been an increase in credit card spending and new cards issued across all consumer segments, including the sub-prime segments, said Oakes in a statement.

She said there are some signs that borrowers are starting to have trouble covering the bills, with average payment rates for those who carry a balance down from a year ago, she said.

“Consumers have been making strong payments, but we are starting to see a shift in payment behaviour especially for credit card revolvers — those who carry a balance on their card and don’t pay it off in full each month.”

Delinquencies on auto loans have also started to trend up, especially those opened since late 2021, she said.

The overall rate of more than 90 day delinquencies for non-mortgage debt was 0.93 per cent, up from 0.87 last year, though insolvencies are still well below pre-pandemic levels.

New mortgage volume dropped 22.7 per cent in the quarter compared with last year and by 14.9 per cent compared with the third quarter of 2019. First-time home buyers are paying over $500 more for almost the same loan amounts as first-time buyers last year.

Overall insolvency rates are up from a year ago but from a relatively low starting point, and there are some areas of concern including a rise in consumer proposals by seniors, said Oakes.

“The true impact of interest rate hikes could be visible by the end of 2023.”

Bank of Canada set to hike interest rate

Meanwhile, as Canadians continue to struggle with debt, the Bank of Canada is expected to hike its interest rate yet again Wednesday, marking the seventh consecutive increase this year.

The move will conclude a historic year for the central bank, marked by high inflation and aggressive monetary policy tightening.

Forecasters anticipate the key interest rate, which is currently at 3.75 per cent, will rise by either a quarter or half a percentage point.

Even the smaller hike would bring the interest rate to the highest it’s been since 2008.

In the wake of rapidly rising inflation this year, the Bank of Canada has raised its key interest rate six consecutive times since March, racing to clamp down on inflation expectations before they became unmoored.
After raising its key rate by a historic full percentage point in July, the Bank of Canada has tapered the size of its rate hikes. In September, it announced a three-quarter percentage point rate hike, followed by half a percentage point in October.

Now, the end of the rate hike cycle appears to be near.

Bank of Canada governor Tiff Macklem said as much following the last rate decision in October.

“We are getting closer to the end of this tightening phase but we’re not there yet,” Macklem said in a news conference on Oct. 26.