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Canadians rack up non-mortgage debt amid rising delinquency rates in Q2: Equifax

Canadians rack up non-mortgage debt amid rising delinquency rates in Q2: Equifax
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The growth of Canadian consumer debt eased in the second quarter as the Bank of Canada held interest rates and the cost of long-term mortgages fell, according to figures from credit company Equifax.

Total debt per consumer in the three months to August rose by 1.9 per cent to $71,970 following a 2.6 per cent increase in the first quarter, Equifax said.

Mortgage debt rose by 1.8 per cent to $48,225, while non-mortgage debt gained 2 per cent to $23,745, it said.

“It looks like, after turning to credit to clear their winter blues, consumers were able to get back on a more reasonable track through the spring,” Bill Johnston, vice president of data & analytics at Equifax Canada, said in a statement.

“There were some troubling signs in the first quarter, with credit card usage and average debt rising sharply for some vulnerable consumer groups,” Johnston said. “The results in the last quarter are much more aligned to the current economic situation.”

The Bank of Canada has kept the benchmark interest rate at 1.75 per cent for the past two meetings after raising it five times from 2017 to last October. Long-term mortgage rates have declined as they mirror the so-called inversion curve of bond yields, where interest on 10-year and longer bonds has fallen lower than short-term borrowing, which is not the usual case.

This has pushed down the costs of some borrowing to buy houses and put pressure on the central bank to cut rates.

“The current holding pattern at the Bank of Canada provides consumers with an opportunity to balance their financial situation” Johnston said. “It can help keep delinquency rate increases in check.”

However, he noted there’s a concern consumers could overextend themselves if rates are cut.

“Any rate cuts are likely short term,” Johnston said. “Locking into low fixed rates and avoiding overusing credit cards is a prudent strategy to follow if rates drop.”

Despite the easing of consumer debt increases, the rate at which consumers missed non-mortgage monthly payments increased to 1.12 percent, erasing gains made over the past two years, Equifax showed.

Delinquency rates grew the most in Newfoundland with an 11 per cent jump followed by Alberta and Ontario. Only Quebec showed a decrease.

Non-payments of mortgages also rose for the third consecutive quarter, gaining 9.3 per cent to 0.18 per cent. It was led by British Columbia, Alberta and Ontario.

“The delinquency trend is rising but the magnitude has been muted by the sharp jump in bankruptcies,” Johnston said. “Traditionally, the trends in delinquency and bankruptcy have been highly connected. That has completely broken down since mid-2018, with bankruptcy outpacing delinquency significantly.”

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