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Canadians ramp up mortgage borrowing

Mortgage borrowing is up the most since 2017 (Getty)

Canadians are ramping up borrowing — mostly to pay for their homes.

The seasonally adjusted annual rate of total household credit growth jumped from a 4.4 per cent increase in September to 5.5 per cent in October, according to Scotiabank (BNS.TO). That’s the biggest monthly gain since July 2017, before stricter mortgage rules came into play.

Nearly all of that credit growth came from mortgages, which is 72 per cent of total household credit outstanding.

“Robust labour markets are fuelling demand with strong hiring and wage growth at over twice the rate of headline inflation,” read the Scotiabank report by Brett House, VP & deputy chief economist, and Alena Bystrova, senior research analyst. 

“At the same time, five-year mortgage rates have come down since early-2019 and mortgage qualifying rates were reduced in July 2019.”

The authors note consumer credit has actually slowed over the last two years and loan growth has been relatively non-existent. They offer an explanation for the shift.

“Housing demand continues to run ahead of supply in Toronto, Vancouver, and Montreal—and looks set to continue doing so as immigration rates keep rising,” read the report.

“In response, Canadians may be prioritizing borrowing to buy a home and throttling back on new consumer credit.”

Bailing on debt?

But in a separate report by the same authors, an alarming trend emerges — a big chunk of Canadians aren’t able to keep up with their debt.

The report found in October, new insolvencies for consumers and businesses hit the highest level since 2009.

Mortgage and credit card arrears haven’t budged much, so the authors say the data might not be all about immovable mountains of debt.

“This could imply that the increase in consumer proposals may be an ongoing artifact of the 2009 reforms to the Bankruptcy and Insolvency Act (BIA) and/or a by-product of refinancing to take advantage of low interest rates rather than mounting debt distress, but it’s not clear from the data,” read the report.

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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