Mortgage loan growth in Canada slowed during the fourth quarter, as there were 223,000 new mortgage loans during the final three months of the year. The growth is down 4.8% compared to the same period a year prior.
One reason for slower growth is that Canadians are taking on more household debt. Bad credit loans in Canada are rising, and there was about $1.79 dollars of credit debt for every dollar of disposable income. Debt is now outpacing income growth, even at the slightest level.
Household credit market debt rose at a rate of 178.5% compared to disposable income.
Households in Canada borrowed $21.2 billion in the fourth quarter of the year. Credit borrowing fell to 19.5% on the quarter, which is a positive note. Borrowing is now at $84.6 billion to hit its lowest level since 2014.
Credit debt, which includes mortgage, loans and credit, neared $2.21 trillion in the final quarter. Debt, not including mortgages, reached $769.4 billion. Consumer delinquencies have also risen, as rising rates are expected to last through 2019.
Mortgage lenders have tightened their lending requirements to help lower the risks of bad debt. Higher borrowing costs and slow economic growth as well as elevated home prices are keeping potential Canadian homebuyers out of the market.
Last year, the policymakers in Canada wanted to ease mortgage stress test rules. The International Monetary Fund has warned policymakers not to ease these rules due to the high ratio of household debt.
Mortgage holders are taking on more debt, with current debt at $9,054 on average. Debt for those without a mortgage rose at 5% from a year ago to $7,460. Reports suggest that rising debt will also increase the shock in the long-term if the economy takes a downturn.
Canada’s two largest banks, TD and Royal Bank, posted mortgage growth in the last quarter. Royal Bank of Canada has mortgage book expansion of 5.3%, while TD Bank has mortgage and home equity line growth of 5.8% in the last quarter.
The two lenders provide hope to investors that have seen average mortgage growth slide to 3.2% to hit the lowest level in 17 years.
The government is also partly to blame for the slowdown, with the government trying to calm housing markets. Vancouver and Toronto both enacted stricter lending criteria in an attempt to slow the market.
A cooling market is still healthy, according to TD bank, which claims that during good and bad times, the bank still underwrites the same way.