As house prices surged over the past decade, a growing number of Canadians began borrowing money against the value of their homes. But that trend could be coming to an end.
November saw the growth in home equity line of credit (HELOC) borrowing from chartered banks contract for the first time since 2015, falling by 0.4% month over month, according to a report from Scotiabank.
The report noted that growth in HELOC borrowing began slowing in 2018, when the housing market “entered a period of turbulence” following the introduction of tax and regulatory measures designed to cool the market.
Now, in spite of home prices rising again in several large cities and affordability improving thanks to lower interest rates and a lower qualifying rate, growth in HELOC borrowing hasn’t recovered, the report said. But why?
Scotiabank noted that a 2018 survey conducted by the Financial Consumer Agency of Canada found that half the money borrowed through HELOCs was used for renovations, rather than relocating or buying additional properties.
Today’s improvement in housing affordability “may have made moving more attractive than renovating,” the report suggested, adding that the slowdown in HELOC borrowing “may simply be the case that a wave of renovation projects designed to improve homes’ attractiveness for sale have been completed and the properties are slowly moving to market.”