Consumer demand for new credit intensifies during Covid-19

Consumer debt levels rose in the third quarter, driven by mortgages and car loans.

Average consumer debt increased to $74,897, up 3.3% compared to the third quarter of 2019, said Equifax Canada in a release on Monday.

Total consumer debt rose 3.8% to about $2 trillion in the quarter, it said.

“Homebuyers are largely the reason why we’ve crossed over the $2-trillion threshold,” said Rebecca Oakes, AVP of advanced analytics with Equifax Canada, in the release. “Car sales have also rebounded in the last few months.

Mortgage balances increased by 6.6% compared to Q3 of 2019, and the average new mortgage loan amount surpassed $300,000 for the first time — an increase of 8.6%.

New auto loans were up 11.7% in the quarter compared to the same period last year, and the average auto loan amount increased to its highest level in four years, Oakes said.

Vehicle shortages in some regions following manufacturing shutdowns resulted in increased demand and higher auto prices, she said. In the short term, the pandemic may also have contributed to excess demand as consumers switched from public transportation.

While average credit card spending returned close to pre-Covid levels during the quarter, an increase in average payment amount led to overall credit card debt remaining similar to Q2 levels.

Delinquencies drop — but for how long?

The consumer delinquency rate (excluding mortgages) dropped by more than 15% compared to the third quarter of 2019.

Equifax said the 90-plus day delinquency rate (the percentage of balances where credit users have missed three or more payments) for non-mortgage debt dropped to 0.98% — the lowest level since 2014.

However, delinquencies will be closely watched as deferred payments come due.

“The low delinquency rates we’re currently seeing are likely being masked by deferral programs,” Oakes said.

Further, “There are some warning signs in early-stage delinquency on credit cards where consumers have missed one or two payments that we’re closely monitoring,” she said.

Some of these consumers with missed payments were no longer part of deferral programs as of July, so could be feeling greater financial stress because of Covid-19, she said.

Equifax said more than three million Canadian consumers opted for credit payment deferrals at some point since the pandemic began. As the third quarter closed, deferrals waned significantly.

“Improvements in the job market, combined with some consumers reaching the end of agreed lender deferral periods, have led to less than half [of consumers using deferrals] still having an active deferral at the end of September,” it said.