Canadian consumer debt continued to climb during the third quarter of the year, reaching $2.36T -- a more than 7% jump from where it was at the same time in 2021.

Perhaps a surprise to some, it's not just higher mortgage payments that are responsible for the increased debt. A new report from Equifax, released Tuesday, found that the average non-mortgage debt rose to $21,183, which is the highest level seen since the second quarter of 2020. For Canada as a whole, the total non-mortgage debt stands at $599.9B, which is up 5.3% from the third quarter of 2021.

"Factors including population growth from immigration combined with pent-up demand from the pandemic on things like vacations will be contributing to the overall rise in credit active individuals,” said Vice-President of Advanced Analytics at Equifax Canada Rebecca Oakes. “This is a story of two sides though, as consumers also tend to rely on credit more during tough times. Part of the new credit uptake we’re seeing is likely from people who are feeling financial stress from sustained increased living costs and are taking on more debt as a result.”

The number of new credit users is up noticeably, jumping 34.7% compared to the same time in 2021. It's also up compared to pre-pandemic levels, sitting 16.7% above the third quarter of 2019. In fact, nearly 1.5M new credit cards were issued during Q3 2022, which marks a 22.5% increase from the same time last year.

Spending on credit cards hit an all-time high for Q3, with the average consumer spending nearly $2,447. Credit card balances are also up, rising close to pre-pandemic levels.

“Credit card demand has risen aggressively after being low for more than a year,” Oakes said. “New card growth was seen across all consumer segments, including sub-prime segments. 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. Average payment rates are at a lower level than 12 months ago for this group.”

As non-mortgage debt rose, so did delinquencies, with the biggest increase in delinquency seen in younger consumers under the age of 35. Insolvencies still remain well below pre-pandemic levels, but the report cautions that consumer proposals are rapidly increasing, moving closer to 2018 and 2019 levels.

“Overall insolvency volumes have jumped compared to twelve months ago, but this movement is from a relatively low start point. One area we are concerned about is the rise of consumer proposals taken by seniors aged 65-plus. This was a similar trend to what we saw in 2018 when interest rates started to rise,” Oakes said. “Higher interest rates pushed delinquencies and consumer proposals to the peak right before the pandemic in Q1 2020. The true impact of interest rate hikes could be visible by the end of 2023.”

With housing markets cooling off due to rising interest rates, mortgage debt growth has slowed. The number of new mortgages is down 22.7% annually, and down 14.6% compared to Q3 2019. Unsurprisingly, the country's priciest provinces, which have felt the greatest effects of rising interest rates, have also seen the biggest drop in new mortgages, with Ontario's falling 23.6% and BC's falling 19.7%.

“Higher interest rates not only impact consumers opening a new mortgage, but can also impact those reaching the end of agreed mortgage term periods who are looking to renew or refinance,” Oakes said. “More than 1.2M mortgages are currently three to five years old, and 37% of these have an outstanding balance of more than $250,000. If these consumers do have to renew their mortgage over the next 12 to 18 months, they may experience significantly higher payments than they currently have.”

Going hand-in-hand with this, the number of first-time homebuyers is down, falling 28.1% annually. And for those who do buy a home, their monthly payments are more than $500 above the monthly payments for first-time buyers one year ago.

The third quarter of the year is usually peak season for buying new cars, the report says, but this year, both new car finance and comparable bank loans are down. New leasing, in particular, is leading the decline, dropping 36.9% on an annual basis.

“On top of the decline in activity, more consumers have started to miss payments on their auto loans,” Oakes said. “In particular, auto loans opened since late 2021 have higher than expected delinquency levels after six months but overall, the financial stress is visible as auto delinquencies are fast approaching pre-pandemic levels.”

Personal Finance