It’s probably not a surprise that Torontonians have a lot of mortgage debt, given the price of housing in the city. But residents are also racking up nonmortgage debt — including auto loans, credit card debt and home equity lines of credit — at a rate faster than in any other Canadian city.
Credit agency TransUnion said in a report Wednesday that the amount of nonmortgage debt held by Toronto consumers rose to $30,696 as of mid-year — a 5.49 per cent annual jump. Hamilton’s annual nonmortgage debt growth rate came in second among 11 leading urban centres at 4.20 per cent, rising to $27,212 in the second quarter. Vancouver topped the average consumer nonmortgage debt balance by city at $39,746 although the year-over-year growth rate came in at less than 1 per cent.
But it’s not all bad news for Toronto: the report also said the rate of debt increase in the city dropped to 1.54 per cent in the second quarter of this year, while Toronto’s nonmortgage consumer delinquency rate declined sharply year over year
“The average consumer debt load is continuing to increase but the rate over the last several quarters has started to slow,” said Matthew Fabian, director of financial services research and consulting for TransUnion Canada.
“There might be a bit of credit fatigue in that the average debt is at an all-time high and maybe they are hitting a hurdle in terms of how much added debt they are willing to take on.”
Interestingly, when mortgage debt is included, the report also found that younger Canadian millennials have overtaken older boomers in total debt holdings as part of a generational shift.
The credit reporting agency reported that total millennial debt was up by 12.3 per cent at mid-year compared with a year ago to hit $515.9 billion, just ahead of the $514.3 billion owed by boomers but still behind the $767.4 billion held by Generation X.
Younger borrowers helped push overall consumer debt up 4.3 per cent at the end of the second quarter compared with last year to $1.88 trillion, while debt held by boomers declined.
Across instalment loans, the report shows increased participation from younger age cohorts, with consumers in millennial and Generation Z segments taking on more instalment loans while the rate of loans issued to older consumer groups has declined. This may be due to increased participation of FinTechs — lenders which originate solely through online channels and which focus heavily on personal instalment loans, the report says.
TransUnion says low unemployment and stable interest rates have helped keep delinquencies low even as debts rose, but the risk of a slowing economy means borrowers will have to manage carefully going forward.
“Consumers in Canada continue to build debt, particularly on auto and instalment loans,” Fabian said. “And consumers continue to do a good job of managing their debt levels, with delinquency rates stable over the past year. However, as the economy slows and risks of an economic downturn remain prevalent, it will be important for consumers to manage these higher debt levels diligently to remain current on their obligations.”
The report says bank lending across mortgages has continued to decline, in contrast to nonbank lending which has increased, although from a lower base.
It also says there has been a decline in the size of new credit limits, suggesting some pullback by lenders. The changes weren’t uniform, as the average new limit issued for new credit cards and auto loans increased, while lines of credit, instalment loans and mortgages declined.